THOUSANDS of North-East homeowners were facing mortgage misery last night after it was announced that more than 60 per cent of borrowers may not be able to pay off their endowment mortgages.

Insurance companies, including York-based Aviva, formerly the Norwich Union, are sending out a second round of warning letters telling homeowners if they are likely to have a shortfall.

The letters are coded green for "on track", amber for "in danger" and red for "facing shortfall".

Aviva promised to meet the shortfall in mortgages two years ago, but only if the stock market rose by six per cent a year.

The company now says it is unable to meet the shortfall because of the market decline.

North-East financial advisors last night warned borrowers to seek advice about the possible shortfall in the endowment policies.

A survey by the Financial Services Authority (FSA) last year showed that 73 per cent of North-East home-owners had not taken any action after receiving the first round of warning letters, with 70 per cent in Yorkshire and Humberside.

Endowment policies, which run alongside interest-only mortgages, are supposed to pay off the mortgage in a tax-free lump sum.

But this year's 24 per cent drop in the value of the Stock Market means many endowment policies will fall short of the required lump sum.

Financial advisor Martin Holliday, of Willett Ross Financial Services, in Eaglescliffe, Stockton-on-Tees, said borrowers should seek advice about their mortgages.

He said: "I would say, don't panic, but get some advice. Some people might not need to do anything, but others may prefer to change their mortgage. Everyone's is different and it is important to seek advice."

The Association of British Insurers (ABI) said this week that 10.2 million letters were being sent out nationally. Of the first sample of 1.25 million, 39 per cent were green, 26 per cent were amber and 35 per cent were red.

Interest payments on endowment mortgages have fallen due to the low inflation rate, meaning monthly repayments have dropped.

Borrowers are being encouraged to save the extra cash to meet possible shortfalls in the lump sum payment at the end of the mortgage period.

l Runaway house price inflation came close to stalling last month as new research offered fresh evidence of a cooling in the market.

Britain's biggest mortgage lender Halifax said prices rose by 0.2 per cent in August compared with an increase of 1.8 per cent in July and 2.4 per cent in June.

The figure is the smallest monthly rise since last October and adds weight to recent indicators that Britain's spending boom is running out of steam