THOUSANDS of homeowners in Hampshire face being told their endowment policy payouts are too small to clear their mortgages.

It means that they will have to find another way of meeting the worrying shortfall - an average of nearly £7,000 - through corrective action.

Options include putting retirement dreams on hold, remortgaging over a longer term or converting interest-only loans into capital repayments.

The payouts warning comes from the city watchdog, the Financial Services Authority.

But the FSA says many homeowners are storing up money trouble by ignoring the problem.

Endowments are effectively an investment gamble, as they depend on how the stock market performs, but people buy them to help clear the final chunk of their mortgage - £33,000 as an average.

However, up to seven million people in the UK may find that their maturing endowments won't clear their mortgage debt because of poor investments.

The sheer scale of the problem has once again thrust the scandal of mis-sold endowments during the 1980s into the spotlight.

Many customers bought them because some advisers and lenders, on big commissions, promoted them without stressing the risky downside. Some customers are already fighting for compensation.

Now the FSA has written to life insurers urging them to make sure the rates they use when predicting how much a policy will be worth when it matures are in line with their investment holdings.

Insurers are currently in the process of writing to endowment mortgage holders telling them whether or not their policy is expected to be large enough to pay off their mortgage.

Michael Folger, FSA director of conduct of business standards, said: "For their financial planning, consumers can find it useful to have some idea of potential returns but it is important that they appreciate the uncertainties. No one can predict the future. Projected returns are not promises."