Offset mortgage and savings in same bank

ejv

Hi all,
First post.Not a financial wizard:A.Be gentle!!!
I have offset mortgage in First direct.I have current account and savings account in the same bank, both linked to my mortgage.
If say, I have £90K in current account and £90K in savings account and £350K offset mortgage, how much FSCS saving's protection I get, if bank goes bust?
I think they changed rules in Jan 2011.
Thanks in advance,
ejv

DVardysShadow

http://www.fscs.org.uk/what-we-cover/eligibility-rules/compensation-limits/

I would say £85,000 as your protection would be under the category 'Deposits'. I doubt you would have compensation under 'Home Finance'. Others may have a different take on this.

In your position, I would act to reduce my exposure. And I would hope your current account amount is purely hypothetical.

HappyMJ

ejv wrote: »

Hi all,
First post.Not a financial wizard:A.Be gentle!!!
I have offset mortgage in First direct.I have current account and savings account in the same bank, both linked to my mortgage.
If say, I have £90K in current account and £90K in savings account and £350K offset mortgage, how much FSCS saving's protection I get, if bank goes bust?
I think they changed rules in Jan 2011.
Thanks in advance,
ejv

You wouldn't get any protection as such. You won't need it as you technically don't have savings. If First Direct were to go belly up your debt will go down by the amount that you have offset so you will owe £350k minus the £180k you have offset. So you only owe them £170k once the accounts settle down. If you want access to this cash I highly recommending moving some of it out. Don't worry you won't lose out.

opinions4u

HappyMJ wrote: »

You wouldn't get any protection as such. You won't need it as you technically don't have savings. If First Direct were to go belly up your debt will go down by the amount that you have offset so you will owe £350k minus the £180k you have offset. So you only owe them £170k once the accounts settle down. If you want access to this cash I highly recommending moving some of it out. Don't worry you won't lose out.

That was the case until 31st December 2010. It isn't now.

The OP would be left with £85k and a £350k debt in the unlikely event of HSBC tanking.

I have £90K in current account

Why?

ejv

HappyMJ wrote: »

You wouldn't get any protection as such. You won't need it as you technically don't have savings. If First Direct were to go belly up your debt will go down by the amount that you have offset so you will owe £350k minus the £180k you have offset. So you only owe them £170k once the accounts settle down. If you want access to this cash I highly recommending moving some of it out. Don't worry you won't lose out.

This was what I thought.
But recently a pal said they changed this in January 2011.
I couldn't get much info from FSCS website

HappyMJ

ejv wrote: »

This was what I thought.
But recently a pal said they changed this in January 2011.
I couldn't get much info from FSCS website

A quick google reveals you would get £85,000 in cash and the remainder would reduce the mortgage. You still won't lose out. http://citywire.co.uk/money/offset-mortgages-new-compensation-rules-explained/a461448

DVardysShadow

HappyMJ wrote: »

You wouldn't get any protection as such. You won't need it as you technically don't have savings. If First Direct were to go belly up your debt will go down by the amount that you have offset so you will owe £350k minus the £180k you have offset. So you only owe them £170k once the accounts settle down. If you want access to this cash I highly recommending moving some of it out. Don't worry you won't lose out.

This is a common misconception. In the event of a failure, the setoff does not apply in the customer's favour, AIUI. The debt of 350 and the deposit of 180 would be regarded separately

getmore4less

DVardysShadow wrote: »

This is a common misconception. In the event of a failure, the setoff does not apply in the customer's favour, AIUI. The debt of 350 and the deposit of 180 would be regarded separately

These post jan 2011 changes articles disagree(incuding the FSCS).

http://moneyfacts.co.uk/tips/mortgages/offset-mortgage120411/

http://www.thisismoney.co.uk/money/saving/article-1711240/Safety-net-cash-boost-for-offset-mortgages.html

http://www.fscs.org.uk/industry/sub-schemes/accepting-deposits/payout-arrangements-from-1-january-2011/

How are offset mortgages dealt with?
If a deposit account is separate from the mortgage balance, it would be dealt with separately and compensation would be calculated on a gross basis. However, if the deposit account is combined with the mortgage account and operated as one large overdraft, the FSCS would have to treat it as an overdraft and no compensation would be payable. It is important that consumers appreciate the difference between these accounts.

If the accounts are separate the FSCS would pay compensation up to the limit and the remainder would automatically be set-off against the debt (or in this case mortgage) under insolvency law

dimbo61

HSBC go bust !!!! that would be worse than 2008 and Northern Rock, B&B etc
Why not reduce some of your mortgage debt by paying a lump sum off the mortgage ?

ejv

Thanks everybody especially HappyMJ and getmore4less.:beer:
Well explained links