How safe is an offset mortgage account?

Bob_V · 5 July 2008 at 11:44AM

Hi,

I don't know if someone out there might help me with this little dilemma. My father recently died leaving me an inheritamce of almost exactly the same as my mortgage (£120k). Anticipating this I recently changed my mortgage to a good deal that one of the smaller building societies was offering. Part of the deal was an offset savings account where you can put money to offset the mortgage. The money in the savings account does not earn any interest merely stops me having to pay mortgage repayments on the amount in there. The reason I didnt merely pay off my mortgage was that I am intending to buy a holiday property at some stage and I didn't want to go through the hassle of arranging another mortgage.

I pay tax at 40% - my wife does not pay any tax as she is not working.

My worry is this. If I put all my inheritance in the offset account (approx £120k) would I lose money if the building society went under? I'm not sure because it would seem to me that if I owe them £120k (the mortgage agreement) but they then owe me £120k because they go under would this be all debts cancelled out or would the receiver come to me for the mortgage owed first and leave the money they owe me (money in the savings account) to last - in other words I lose my money.

Or am I being paranoid

Thanks for any help - Bob

ziknik · 5 July 2008 at 12:10PM

I think (I am going to double check and repost) they will knock £35k off the mortgage. You will still owe £85k. You will not get any further compensation

ziknik · 5 July 2008 at 12:56PM

Read this.

http://www.fool.co.uk/news/property-home/mortgages/2008/04/11/be-careful-with-offset-mortgages.aspx

As far as I understand it, I am correct in my above post for a building society. Banks are different

Building Society Example:

A couple have a mortgage of £135,000 on their home, offset by savings of £100,000.

Unexpectedly, their bank runs into difficulties and they become subject to FSCS rules. Only £35,000 of the couple's savings is guaranteed by the FSCS - but this sum is deducted from their outstanding mortgage, leaving them with a debt of £100,000.

Meanwhile, £65,000 of their savings (the portion not guaranteed by the FSCS) simply disappears. The only way for the couple to get it back is to go through the bank's liquidator.

It's chilling stuff.

Banks are different

"If a bank were to go into default, the FSCS would consider the overall net claim. If the claimant's borrowings exceeded his/her savings, there would be no overall claim against the bank, and the claimant would not be entitled to any compensation.

For example, if a customer had a mortgage of £200,000 and savings of £150,000 with the same bank, set-off would be applied to the example above by the Insolvency Practitioner dealing with the bank failure. As a result, the individual would end up owing the bank £50,000. There would be no positive balance and no claim.

This cannot be assumed to apply to building societies, as there is no automatic set-off on insolvency".

ziknik · 5 July 2008 at 1:00PM

I should have asked before. Is it a joint savings account? If there are 2 names on the account you get 2 x £35 = £70.

Can you put 4 names on the account?

tonyE1 · 5 July 2008 at 1:06PM

Aside from the legalities of a Bank/BS going under I just can't see it happening. Brown and his Darling and old Labour would be absolutely sunk for eternity if that was to happen. Just like the Fed they would slash interest rates days before as in Bear Sterns regardless of the inflation implications. I wouldn't bet against the fact that there is a media black out on such stories and no doubt rescue deals would be guaranteed with future favours to those in the city that baled them out.

ziknik · 5 July 2008 at 1:11PM

tonyE1 wrote: »

Aside from the legalities of a Bank/BS going under I just can't see it happening. Brown and his Darling and old Labour would be absolutely sunk for eternity if that was to happen. Just like the Fed they would slash interest rates days before as in Bear Sterns regardless of the inflation implications. I wouldn't bet against the fact that there is a media black out on such stories and no doubt rescue deals would be guaranteed with future favours to those in the city that baled them out.

It depends on the speed of the financial collapse.

If several institutions or a big institution (Barclays) failed, Brown would not be able to print money fast enough to save them.

tonyE1 · 5 July 2008 at 1:24PM

ziknik wrote: »

It depends on the speed of the financial collapse.

If several institutions or a big institution (Barclays) failed, Brown would not be able to print money fast enough to save them.

If something big ( like Barclays ) failed then I think it would be safer to be on the streets of Baghdad than England. Which reminds me to dash down to the cash and carry for a palette of baked beans.:cheesy:

ziknik · 5 July 2008 at 1:27PM

Make sure you get some pickled onions, Vitamin C

Bob_V · 5 July 2008 at 2:20PM

Tony, Zikni,

thanks for your replies. It is a bit scary to take a chance on that sort of money! The mortgage is in my name and my wifes so I guess we would be ok to put £70k in to be absolutely safe. We have two kids but I'm not sure of what the implications would be if we put it in their names. We also have a mortgage out on an investment property of about £35k so I think I will pay that off and then try and find a home for the rest in my wifes name!

Rob

How safe is an offset mortgage account?

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