FSCS Protection with Mortgage and Savings?

dodgy

Hi,

I've a question about FSCS protection which I've tried to research without much luck. I was hoping someone could perhaps help.

Say I have both an offset mortgage of £50,000 and savings with a bank of £150,000.

In the event that they went bust, would they repay my mortgage before returning the protected £85,000 (losing 15k) - or would they return the £85,000 (losing £65k) and then still expect me to repay the £50,000?

Thanks

jamesd

The amount up to the FSCS limit will be paid to you by the FSCS if necessary. The remainder will be offset against the mortgage balance by the liquidator. You end up with £85,000 in cash, £50,000 offset against the mortgage balance of £50,000 and a claim with the liquidator for the remaining £15,000 that was in your account.

This will not really happen. The bank will be rescued instead and all will continue just as it was going to before. Almost certainly. But not quite certain, just what pragmatically will happen to maintain confidence in the banking system. The literal rules are most likely to be applied if it's a small bank or building society but even there it's now unlikely because the resolution rules for insolvent banks involve setting up a new holding company and transferring the customers and all of their deposits and liabilities to that new company, leaving the old holding company the one that is insolvent and being chased by those who hold its corporate bonds and shares. This is intended to happen over a single weekend.

I've assumed that your savings are in a savings account and that your mortgage is not operated like a single current account with a big overdraft, all money into the same account. That has different rules. But the resolution rules mean that the end result is likely to be the same: no change, life carries on exactly as before.

colsten

jamesd wrote: »

This will not really happen.

And if it does, will you pay people who took your word?

dodgy

Thanks for the info. While I fully expect it to never happen, I want to go into things with my eyes open.

The above looks open to all sorts of wrangling if you've got to rely on liquidators. I guess I need to find somewhere else for my Cash ISA to live, and then the problem goes away (for me, at least).

jamesd

colsten wrote: »

And if it does, will you pay people who took your word?

My word is irrelevant. Go and look at the resolution plan for bankrupt banks and read what it says, which I've summarised. If you want more "fun" also look at the new EU rules that take effect for Eurozone banks in the new year and their bail-in requirements for savers.