Offset mortages and depositors protection on savings side

dm100_2

Hi,

I was just wondering, if you have an offset mortgage, where the savings are held in a separate savings account (aren't most like this?) and this is higher than the depositors protection threshold - if the bank your offset mortgage is with goes bust what is the outcome:

1) amount higher than threshold in savings account gets (potentially) lost
AND mortgage amount remains the same? (eg: 500k mortgage, 300k savings after you end up with 500k debt and 50k cash?)

2) mortgage debt is reduced by the amount lost above the threshold? (in that previous example, you end up, from 500k mortgage/300k savings to a sitaution with 200k mortgage OR 250k mortgage/50k cash?)

3) something else?

Cheers!

dm

Trying_to_be_good

Can we have a sticky on this, please?!!!!

Borrowing is set off against savings.

Mortgage > Savings, balance is still owed

Savings > Mortgage, cover for the balance of savings upto £50,000 (from tomorrow)

So, 2 - well, sort of 2a! (£500k mortgage, 300K savings becomes £200k mortgage)

olly300

Strangely I was reading up on this today.

The mortgage debt is paid off first and if there are any left over savings, then you get the amount up to £50K per person.

So for a single mortgage payer, if you have a £200,000 mortgage and a £100,000 of savings then you don't get anything back. However your mortgage will be reduced by £100,000. You can then re mortgage to get extra cash.

If you have a £100,000 mortgage and £150,000 of savings you get £50,000 back.

If you have a £100,000 mortgage and £200,000 savings, then you still get £50,000 back and lose £50,000.

So in other words make sure your savings outstrip your mortgage by only £50,000 if you are a single person.

If you are couple then with a 50/50 stake you get £50,000 protected per person.

silvercar

This was the subject of an article in the Times at the weekend:

http://www.timesonline.co.uk/tol/money/savings/article4881428.ece

Their take seems to be that you would end up with a mortgage reduced by the total value of your savings if your lender was a bank or some building societies. For other building societies, your savings may only be protected upto the 50k (100k for joint) level.

The FSCS have produced an answer, see number 5 of their FAQs, but note their use of the word "may":

http://www.fscs.org.uk/consumer/faqs/deposit_claims_faqs/

"For example, if a depositor had a mortgage of £200,000 and savings of £150,000 with the same bank, set off may be applied by the Insolvency Practitioner dealing with the bank failure. As a result, the depositor may end up owing the bank £50,000, so there would be no positive balance and no claim for compensation."

dm100_2

Informative responses!

silvercar wrote: »

The FSCS have produced an answer, see number 5 of their FAQs, but note their use of the word "may":

http://www.fscs.org.uk/consumer/faqs/deposit_claims_faqs/

"For example, if a depositor had a mortgage of £200,000 and savings of £150,000 with the same bank, set off may be applied by the Insolvency Practitioner dealing with the bank failure. As a result, the depositor may end up owing the bank £50,000, so there would be no positive balance and no claim for compensation."

"May" - does this mean best-case, you might end up owing nothing (and have debt/savings wiped out? ie holder of an offset mortage with less savings than mortage 'wins'?)

And, what are the possibilities if say, you end up in a situation if the "may" goes the other way, where the total debt (mortgage) is still > 0 and say the general (or your) circumstances have changed so that you can no longer raise / find a mortgage to cover? Forced sale? I'm assuming you'd no longer have the previous mortgage?

daz

silvercar

I took "may" to mean that the IP may knock your savings off your debt and you would only owe the remains of the debt or the IP "may not" in which case your mortgage debt would remain and your savings would only be protected upto the £50k (£100k for joint) limit. In the latter case your savings upto the limit would be knocked off the debt and the remaining money still owed. So in the latter case, any savings above the safety limit would be lost.

To be honest I don't think either of your scenarios is likely. The whole debt will never be wiped out for free as the IP would always be able to sell your debt to another lender. You wouldn't be put in a position of having to find a new mortgage yourself as your mortgage would remain but passed to another lender.