FSA Savings Compensation Scheme and Offset Mortgage Savings Query

akw24

If someone has a UK Bank Offset Mortgage of say, £75,000 and offset savings also of £75,000 in the same bank (thus fully offsetting monthly interest) and that bank went bust, how would the FSCS £50,000 savings protection scheme work? Would the remaining £25,000 savings deposit not covered by the FCSC scheme be "covered" anyway by the fact that the person owes the bank that same amount of money via the mortage and could therefore refuse to pay in lieu of the lost savings?

robertjonesuk

if your mtg is 75k and your savings the same, in case of bank collapsing as your savings will be taken to pay the mtg off.

for example: so if your mt 50k but savings 75k, 50 will be used to pay mtg and 25k will be protected.

opinions4u

akw24 wrote: »

If someone has a UK Bank Offset Mortgage of say, £75,000 and offset savings also of £75,000 in the same bank (thus fully offsetting monthly interest) and that bank went bust, how would the FSCS £50,000 savings protection scheme work? Would the remaining £25,000 savings deposit not covered by the FCSC scheme be "covered" anyway by the fact that the person owes the bank that same amount of money via the mortage and could therefore refuse to pay in lieu of the lost savings?

For this specific example, you'd walk away with no savings and no mortgage. The FSCS looks at your net position with any provider after taking in to account money owed.

A mortgage holder could have a £75k debt and £125k in savings with the same company. This would effectively mean the debt would be cleared, leaving £50k of savings covered by the FSCS.

Gorgeous_George

See FAQ Q5.

GG

ziknik

opinions4u wrote: »

For this specific example, you'd walk away with no savings and no mortgage. The FSCS looks at your net position with any provider after taking in to account money owed.

A mortgage holder could have a £75k debt and £125k in savings with the same company. This would effectively mean the debt would be cleared, leaving £50k of savings covered by the FSCS.

Be careful. Banks and building societies are different.

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

Building Society

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 Example:

"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".

akw24

New to this and not sure of the protocol of thanking individual responses or everyone, but many thanks anyway to the four people who replied this evening with helpful and accurate answers.

silvercar

just click the thanks button.

That BS example is old and incorrect. On a joint mortgage there would be £100k of savings protection (previously £70k), not the 35k quoted.

quadehauser

ziknik wrote: »

Be careful. Banks and building societies are different.

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

We have a joint offset mortgage with IF with an outstanding debt of about £230,000. My partner has savings in her name which offset about £25,000, whereas my savings in my name cover the rest (about £205,000).

So in the case of a default by the bank, will the insolvency practitioner deem that only £115,000 of the debt is mine and therefore set off £140,000 from the mortgage debt (£115,000 + my partner's savings) and leave a mortgage debt of £90,000 and a loss of my savings of £90,000.