Confusion over FSCS, offset mortgage plus savings

mildred1978

I think I understand what happens with the FSCS scheme when you have an offset mortgage partially offset with savings in normal circumstances, but am struggling to find an answer to my specific circumstances. I have a First Direct offset mortgage.

I found an example where if you had a £250k mortgage and £100k savings, the FSCS would give you £85k of the savings and knock the remaining £15k off the mortgage. Previously I understand the £100k would have come off the mortgage with no cash being paid out but the mortgage being reduced to £150k.

In my case I am fully offsetting already, plus some extra money that I needed to keep liquid.

I'm going to be receiving another £65kish as a redundancy payout in the next few weeks and am working out where to put some of it. At the moment I have around £20k more than the mortgage in accounts with FD (the £20k is in an interest bearing account).

I am trying to find out whether I'm at risk of losing anything should FD/HSBC go bust (unlikely but who knows?!). FD are as confused as I am. Can anyone advise?

For ease of explanation, say I have a £100k mortgage, with £100k in offset accounts and another £20k in an interest bearing account. If the bank went bust would I get back

a) £85k as per the compensation (£20k savings plus £65k of the offset), with the remaining £35k being paid off the mortgage leaving a £65k mortgage outstanding?

b) £20k because the offset and the mortgage cancel each other out?

c) £85k of the offset money under FSCS, £15k off the mortgage and lose the other £20k?

My head is spinning with all of this!

noh

The method used changed in January 2011 hence the two different examples you found.
The answer is now a. Before Jan 2011 it would have been b.

The situation now is
Your total savings are £120K
In the event of failure of the bank you would receive £85K compensation from FSCS.
Under insolvency law the remaining £35k would be set off against your mortgage. Therefore you would end up owing them £65k and have £85k savings.
See:-
http://www.fscs.org.uk/industry/sub-schemes/accepting-deposits/payout-arrangements-from-1-january-2011/