What happens to your mortgage if a bank collapses?

ammonite

Just hypothetically speaking. I was wondering what happens to your mortgage if a bank collapses? Who do you pay your mortgage to then?


Also, if the bank are wobbling, do they typically offer deals to customers such as "pay half your mortgage back immediately and we'll call it quits"?

Sorry for my ignorance. Just been wondering these points whilst watching the gloom of the banks unfolding on the TV!

getmore4less

Northern Rock is an example

dunstonh

Just hypothetically speaking. I was wondering what happens to your mortgage if a bank collapses? Who do you pay your mortgage to then?

The retail side will keep running and you keep paying as normal. Either a buyer will be found or it will be nationalised or it will be an orderly transfer of assets by the administrator.

We have already lost Northern Rock & Bradford & Bingley. LloydTSB (due mostly to Halifax/BoS) and RBS (inc Natwest) are virtually state owned and will probably end up with a larger stake or even fully nationalised.

Also, if the bank are wobbling, do they typically offer deals to customers such as "pay half your mortgage back immediately and we'll call it quits"?

No. There have been a few of the sub prime lenders that waived ERCs and offered a few thousand to try and offload high risk borrowers but thats about it.

Sorry for my ignorance. Just been wondering these points whilst watching the gloom of the banks unfolding on the TV!

dont let it worry you. That is what the media want.

undaunted

They don't let banks collapse in any true sense (for fear of what the panic might do to the economy) they just bail it out or find someone else to buy it. I therefore wouldn't bank on getting half of your mortgae written of any time soon

Thrugelmir

Your mortgage is an asset. So why would a bank want to lose money on it? More likely they'll charge you more for borrowing the money first.

holly_hobby

If a national bank were to come to the situation where they were unable to continue trading, the Bank of England would be forced to step in, in their role as " lender of last resort".

The reason being, that the allowed collapse of a bank would have the potential of such catastophic impact on the banking industry as a whole (i.e all banks being the subject of a run, as seen with the panic which effectively caused the near collapse and resulting nationlisation of N Rock), that it would cause financial meltdown, both in this country and others.

Following which, and after an audit, the banks mortgage book, may well be sold on to a secondary financial institution (not necessarily another UK bank), as part of the stablisation package.

If primarily a mortgage provider (and NOT primarily a banking institution), BOE would not be reqd to steady the ship, in that case the official reciever (OR) would (as already stated), simply sell off the assets to the highest bidder - the mortgage book obviously being that with highest potential value.

One thing that won't happen, is the OR contacting all mortgagors on such an occassion, and offering a 50% or reduced deal, for them to repay the os mge off in one go .... however appealling that may sound to us who hold a mortgage !

Hope this helps

Holly

ammonite

Thanks for the replies. It was much appreciated!!