Northern Rock mortgage with Flexible Reserve - is it safe?

CasperBloomberg

We currently have a Legal and General Flexible Reserve Mortgage, (taken out in 1999) that is now owned by Northern Rock but still run under the L&G name. It works as an offset mortgage with overpayments building up as the "flexible reserve".
Our mortgage is matched by the value of the flexible reserve (less £100) and therefore we were viewing it as paid off, whilst sitting with a pot to borrow back if ever necessary. However in the light of what has happened today we can't work out if our cash is safe or viewed as savings.

In the documentation, it talks of borrowing money from the reserve (not withdrawing), but it also stresses that money in the reserve hasn't paid of the capital. So if NR goes bust, is the mortgage pot cleared and we are mortgage free but lose the reserve, or is the reserve fund treated as savings and we lose all but £31K or so and still have a mortgage to pay?

Does anyone know? Or know what phrases to look for in the documentation that would clarify it?

homer_j_3

first of all - northern rock are not going bust.

yes your money is as safe as it is with any other lender. The news today has come from the fact that they are asset rich but not cash rich. The reason for this is that the wholesale market where NR borrow a lot of their money to lend out to new borrowers has dried up because of the problems being experienced in the US.

Hope this puts your mind at rest.

CasperBloomberg

Thanks for your reply. I'm sure you're right and NR will get through this issue.

Our concern is also a theoretical one. Our other savings are spread around various institutions, but we had not until today considered what the risk was of having so much in one place, as we hadn't viewed this pot in this same way.
Advice on this site is to spread things around to reduce risk, but offsetting requires the opposite.

silvercar

I would also like to know the answer to Casper's question. My offset is not with NR but a building society.

The question is whether, in FSCS terms, offset pots of savings are considered as savings in their own right or netted off the mortgage. We know that all savings with one institution are grouped together but does that include offset mortgage savings being grouped with the mortgage?

warn82

Your money is totally safe. The Bank of England will not let Nothern Rock go under.

The money in your cash reserve will be fine. You will continue to gain your interest just as your mortgage will continue to accumilate interest

It's a shame the press seem to be sticking the knife in to NR. Afterall they have done nothing wrong and this situation was out of their control.

dunstonh

I believe (but havent verified) that offsets are treated as deposits on one side and full mortgage amount on the other.

There is nothing wrong with NR from a solvency point of view. Its future profits that are an issue and the ability for them to continue funding NEW business not existing business. The dumbed down media is playing on the negatives. Watch or read the more serious news and you get more information that is accurate.

In reality, the NR story is boring as its really a non issue to everyone, including current NR customers, but add comments like "run on the bank" and it grabs the attention that the media loves.

Rick62

I thought that if you couldn't meat your liabilities as they fall due that meant you were insolvent, in fact I thought that was the definition. In which case if that were you or me we would be insolvent because the BOE would not come to help us.

I think the media coverage has actually been very poor - they keep talking about NR having £100 billion of assets but forget to mention that they also have £97 billion of liabilities. Thats gearred to 97% - doesn't seem that secure to me.