Offset Mortgage - might I owe it all!

Stu01

I am a married man with 3 schhol-aged children in private education.

18 months ago I set up a £500,000 Openplan (offset?) mortgage with Woolwich (Barclays) where I could call off elements of the money as I needed it to pay school fees.

So far I have used £200,000 and the system uses the £300,000 I haven't used, to offset the interest payable - so that I end up paying interest only on the £200,000 (at 1% above bank rate).

Now, given all the turmoil in the markets (and I don't beleive Barclays will fail, but....), if Barclays DOES fail - could I be liable for the full £500,000 even though I haven't taken it; it's not really my savings account - is it?

Thanks for any help,

Stu

maninthestreet

It's not clear what this £500,000 is - is this your savings, or money you have borrrowed from Barclays? Or have you borrowed £200,000, and the option of borrowing another £300,000 if you wish?

dimbo61

You owe the bank £200,000 so if the bank went bust you would still owe £200,000.
Private school ! with 3 kids ! all of whom you hope will go to university YES
You might well need all of the £300,000 to pay for them through there education.
Hope you have a safe, very well paid job with a great pension. GOOD LUCK

Stu01

Yes, that's the bit lacking in clarity.

When I took out the mortgage it was for £500,000 (interest only mortgage) which could be put into different pots.

I have £300,000 in a pot that reduces the overall interest (so I only pay on the £200,000). In earn no other interest on the £300,000. I see this as Barclays really only having leant me £200,000.

I'm concerned that Barclays may see this as having leant me £500,000; and if they go bust they will want £500,000 from me - even though £300,000 is with their own bank.

Not sure what to do - leave it alone; take it all out (and put it where)?

KiKi

In the event of a bank collapsing where you have savings only, then you have £35K protected. If you have savings AND debts with the one bank, your savings would go to pay the debt first.

So, you have a 500K mortgage and 300K savings. Your 300K would go towards your debt first, and you'd end up overall with a debt (mortgage) of 200K.

An offset (as someone rightly pointed out to me the other day) is actually one of the safest ways to save. The limit of protected savings is £35K per person, per institution. And therefore usually for 300K you'd risk losing 265K.

However, as your savings and debt in the one place, the savings would wipe out debt first, ALL be put to good use (not just £35K) and therefore you are much better off doing this.

So in summary - no, the savings would cancel out 300K of debt, and you'd end up owing 200K, so no need to panic or move your money.

(Of course, if Barclays DID go bust and the government bailed it out, nothing changes. And if Barclays did go bust with no government bail out, the reality is that your debt would be wiped anyway, so you'd end up better off by 200K, with no savings, but no debt. So my answer is purely theoretical, because what you're proposing can never actually happen if you have an offset!)

HTH.
KiKi

Gorgeous_George

The OP has borrowed £500K; used £200K to buy the house and put the other £300K in a linked savings account.

If the bank goes to the wall, he will owe £200K but will not have access to the additional funds (£300K).

GG

KiKi

Gorgeous_George wrote: »

The OP has borrowed £500K; used £200K to buy the house and put the other £300K in a linked savings account.

If the bank goes to the wall, he will owe £200K but will not have access to the additional funds (£300K).

GG

Yes, in theory he would owe £200K. But if it actually went bust then that debt would wiped anyway.

That's correct, isn't it? </wave of self doubt>

KiKi

Cleaver

KiKi wrote: »

Yes, in theory he would owe £200K. But if it actually went bust then that debt would wiped anyway.

That's correct, isn't it? </wave of self doubt>

KiKi

I may be wrong, but if a bank / mortgage lender goes bust there will always be financial institutions willing to take on the mortgages as a general rule. The OP would end up owing the debt to a different organisation, probably at a higher rate too.

So if a bank goes bust you could lose savings, but keep your debt. Life hey?

KiKi

With an offset you'd keep the debt once the savings were taken into account, though.

I'm sure that Martin said if a bank went bust with no government bail out that the debt is wiped...last Friday on Radio 2. Happy to be corrected, I'd like to know myself!

KiKi

Stu01

Thanks to all who have replied, but I am still confused.

Gorgeous_George

Debts do not get wiped.

Say you bank with GG Bank and borrow £500K. You put £300K in a linked savings account and use the £200K to buy your home.

The bank goes under.

The administrators sell your mortgage to a.n.other bank and you still owe £500K but still have £300K in the offset account.

If you still don't understand it, rent.

GG