MSE News: New rules planned to protect savers with higher balances 6 October 2014 at 6:02PM in House Buying, Renting & Selling 8 replies 1.4K views

Former_MSE_Paloma

The Bank of England proposes to give homeowners up to £1 million of protection when transferring funds into accounts

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New rules planned to protect savers with higher balances




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Pincher

Can't the solicitor offer some kind of custody account, covered by their professional liability insurance? Let's face it, the typical destination is payment towards the next house, which maybe waiting for completion for one reason or another.

If it's a big lump sum with nowhere to go, why not get an insurance company to offer a paid for insurance, that pays out if the bank goes under? Obviously you shouldn't buy Barclays bankruptcy insurance from Barclays Insurance.

I suspect the best way is some sort of special Individual Secure Account, where you get peanuts for interest, but the money is guaranteed. The bank has to ring fence the funds by making Money Market deposits, and in the event of bankruptcy, creditors have no claim on it.

ShadowPuma

Pincher wrote: »

Can't the solicitor offer some kind of custody account, covered by their professional liability insurance? Let's face it, the typical destination is payment towards the next house, which maybe waiting for completion for one reason or another.

The assumption being that the money is going straight from one house to the next and the same solicitor will be used in both transactions. Which isn't always the case.

Take me for example: Split from my partner and agreed a settlement of the equity in the house. Sale of the house went through in July. I started looking at properties in July and I'm now in the process of buying somewhere. But I'm not in the area that the solicitor for the joint home was and I'm using a different solicitor.

Due to the amount I've been able to split it over two different banks until I need it to stay under the protected limits.

Pincher

That is not a problem, provided the first solicitor is willing to hold the money for you, and forward to the new solicitor when required.


The problem is, my most recent solicitor really hates holding client money, because some of them haggle for interest, which is somewhat difficult since the funds also need to be instantly available. He is not in the deposit interest business, and don't want to get into it. Also, longer term holdings can increase his liability insurance premium.


Which is annoying, because I would much rather move the money into his client account a week before completion, so as to avoid last minute problems, like the bank's security clamping down because it's a large amount, or computer failures. No, he wants the money the day before completion.

Nick_C

This is all well and good, until some people decide to put their money with some dodgy foreign bank to get the highest possible rate of interest, possibly following the advice of some misguided "expert", and then expects the taxpayer to bail them out.

ShadowPuma

Having worked in the finance office of a solicitors this is NOT something they want to do at all. Especially with the money laundering rules and regulations being so stupidly tight these days.

Plus it doesn't allow for someone to use some of those funds for something else apart from a house - say paying off debts. Not everyone knows exactly what they are doing straight away with the proceeds when they sell a house. I didn't know when I would find the house I am buying. And I needed to pay of debts too.

I'm not even sure that business accounts come with any extra protection for if the bank goes under anyway.

Pincher

There is a scenario where you do not want to take the money out of the client account. This is where the property is not a simple principal private residence, which is capital gains tax exempt. Instead of crystallising the gain and paying the CGT, you want to carry the gain to the next investment vehicle. The HMRC requires that you "ring fence" the funds, so you don't use the money for other purposes. Probably needs a specialist firm with both accountants and lawyers to handle it, not for the standard conveyance solicitor.

LydiaJ

An excellent idea - although 6 months seems longer than necessary. Surely people don't need that long to shuffle the money about to the places they want it to be where it will be covered by the usual FSCS guarantee?

It's not just house sales by any means. I collected on a life insurance policy and the pension death in service lump sum when my husband died. Each was over the £85k limit and arrived in the post as a single cheque. Each time, I paid it into an account and moved parts of it to other accounts as soon as it cleared, but it did take a few days, and since it was not long after the IceSave/Kaupthing/Landsbanki collapse, I was a bit worried. This kind of temporary protection for large amounts would have made me feel a lot more comfortable about it.

LydiaJ

ShadowPuma wrote: »

I'm not even sure that business accounts come with any extra protection for if the bank goes under anyway.

The banking system may not offer protection if a bank goes under with client money in an account, but the solicitors' public liability insurance should cover it, I think. (Although I'm not an expert, so am open to being corrected about that.)