Offset with cash deposits .. Good or Bad in the current climate?

Yellowman72

I currently have an offset mortgage with First Direct with a substantial amount of cash in it (far more than the amount guaranteed by the financial services compensation scheme). It has worked well being a higher rate tax payer. However I am now anxious that if the bank defaults they could keep my cash and I still owe the debt on the mortgage.

I have phoned First Direct - who have not got a clue what would happen if HSBC (the parent company) went bust. What should I do? I don't want to pay the mortgage off because I like to have liquidity and in the current market, getting loans/mortgages is far more difficult. Am I at risk on the set-off principle? Should I be taking out the cash and putting it into several banks to get covered by the FSCS?

Thanks

Eyesparky

As far as I am aware (from a number of articles on this subject a few months a go and a lot of searching around) in the event of the demise of your bank your offset savings should first be set against the mortgage account before any balance is calculated for outstanding balances e.g. if you had a mortgage of £100,000 and £80,000 offset against it then the £80,000 would be taken against the mortgage. This would of course mean that you would lose the chance to draw it down but actually means that you are in effect more protected than somebody with a large savings balance in a failed financial institution.

http://www.guardian.co.uk/money/2008/oct/01/mortgages.property
http://financialdevelopment.wordpress.com/tag/offset-mortgage/

Just found a couple of links ... couldn't find the original articles I was looking for, but these should give you the general idea.

StuartGMC

Eyesparky
Thanks for the links; your description was just what I thought the case was but didn't have the links. However, am I correct to think it would also include any offset funds in Cash ISAs?

In our case we'd have little left owing on the mortgage but majority of cash savings would be thrown against the mortgage. That said, I hope to clear it in October or at latest in Feb2010 so not much in it overall.

Yellowman
If you are concerned, I think I'd leave the present funds in place and build a separate reserve under a different banking license. However, do you really believe the Government will allow one to go bust now?

george_jetson

It's also worth bearing in mind that FD/HSBC are probably the safest bank to trust with your money at the moment. If they go under we're really stuffed…

Yellowman72

All - thank you very much for your advice and the posted links - I will now sleep easier at night and I can assure you that I have not been sleeping well at all recently! :-)

george_jetson

Can't have people sleeping easier at night in the current climate
Feast your eyes on the attached. Although it is uncomfortable viewing it does rather prove my point about HSBC.

http://ftalphaville.ft.com/blog/2009/01/22/51558/that-jp-morgan-picture-official-redux/

StuartGMC

GJ
As they say, a picture is worth a thousand words and I assume these are not even corrected for inflation 2007 vs 2008? Really does bring bursting bubbles to mind this way too :rotfl:

george_jetson

Seems bankers' balls aren't as big as they thought