Britain’s biggest insurer has announced fresh cuts to payouts from its mortgage endowment policies, spelling more misery for borrowers relying on the policies to pay off their home loan.

Norwich Union, which has 900,000 endowment savers warns that, despite four years of rising stock markets, 90.3 per cent are still in the red zone, meaning they are no longer on track to repay their mortgages. This is a slight increase from last year, when 89.5 per cent were on condition red.

Norwich Union runs endowments investing in four funds - Norwich Union, Commercial Union, General Accident and Provident Mutual. All are paying out less than equivalent policies last year.

A typical maturing £50 a month, 25-year General Accident policy will from this month pay out £45,911. This is 2% down on the £46,829 paid out on an equivalent plan that matured last year.

Payouts on benchmark 10 year bonds have also fallen across the board. A General Accident bond taken out in 1998 will pay £15,653 this year compared to £16,753 if it had been taken out a year earlier.

The company has 69,000 mortgage endowments due to mature this year, of which about half are expected to fall short many by more than £1,000. Some of these people, however, will receive a helping hand in the form of a payment from an assistance fund launched by the insurer in 2000.

The fall in payments comes even though the fund in which these policies are invested grew by 5.4 per cent last year, beating the 4 per cent gain in the FTSE 100 index of leading shares. The Norwich Union with-profits fund saw a 5.8 per cent return in 2007, while Provident Mutual managed just 3.3 per cent.

Norwich Union was keen to stress that it isn’t all bad news, saying final bonuses on many policies have improved and regular bonuses were unchanged. It said it has removed all exit penalties – known as market value reductions – from the funds, making it easier for disgruntled investors to quit.

However, Norwich Union’s payouts are regarded as a bellwether for the rest of the insurance sector. Savers are therefore being warned to expect falling payouts when other insurers announce their payouts over the next few months.

Friends Provident announced last week that its payouts also fell this year. A 25-year endowment policy maturing now at £36,425 is 3 per cent down on last year.

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