Do / should mortgage reserves have FSCS protection

rodp_2

Hi All,

I've just sent off another email to the FSCS after they chose not to reply to my first one and thought it might be a good idea to raise this query here too....

Please can you help me understand if my funds are protected or not in the following situation: I have a mortgage with Nationwide which tracks the Bank of England base rate + 2%. The original mortgage was obtained in 2006 which was fixed for 3 years and then went to what was known as the BMR rate. I am allowed to overpay whatever I like and draw down on the reserve i build up by overpaying whenever I like without penalty.

The nationwide have written to me after I enquired, stating that the reserve is not protected because it "is not a savings account". In your view(s), should / could these reserves also be protected?

Many thanks in advance

Rodp

minimike2

Sounds like a borrow-back facility?

In which case it is not a savings account and wouldn't fall under the protection.

getmore4less

Protected in what way?

There is nothing to protect,

If you draw them down you create a bigger debt.

if they were protected in the sense that they are separate like say a savings account with an offset mortgage then setoff would apply, where if Nationwide went down they could reduced your net debt by using the money to reduce your mortgage, again nothing left to protect.

rodp_2

Hi getmore4less,

So in theory you could say the money wouldn't be lost, it would just be the fact that you wouldn't be able to borrow it back from the reserve in effect paying off the mortgage leaving yourself with a smaller mortgage.

So I think it might make sense to find a new mortgage that is an offset mortgage to ensure funds are protected? Do all offset mortgages (UK based) have the same £85K protection (per person)?

FYI, my plan is to have access to large sums of money should the need rise with minimal interest. I feel in this day and age this is the best and easiest way without having to go through all the red tape of credit checking etc each time you take out an additional loan.

There will come a time we'll need to pay the mortgage off but at the current moment in time I'd rather have the safety net of these funds.

I do understand the need to make use of ISA's etc. but currently no ISA interest rate can beat the interest rate of the mortgage so it make sense to keep paying off the mortgage at the moment until it's a manageable value.

Thanks

Rodp

getmore4less

Offset may not help as they can just take the money to pay down(set off) the debt if you don't get it out in time.

rodp_2

Hi getmore4less,

Not sure what you mean by 'don't get it out in time'. When they file for bankruptcy?!

If it's an offset mortgage then don't you maintain the right to withdraw the protected savings rather than pay off your mortgage when they go under? Or are there some terms in offset mortgages saying the initial priority will be to use the lump sums to reduce the loan before giving you the money back?

Does anyone have an offset mortgage they could kindly look up their terms to see what it says to give some direction on this point?

Thanks

Rodp

getmore4less

Most if not all lenders/banks etc have setoff clauses on their accounts, look up your own T&C on any accounts you have.

They have the right to use any accounts in credit to setoff against any debts.

They don't even have to be offset ones

rodp_2

Interesting.... I will go back and ask them about that. So I'd look for something about 'setoff' in the T&C's for any potential mortgage I'd take out which is an offset mortgage. I suspect I won't have anything in my current old mortgage product as they don't call is an offset mortgage (but I'll check).

So the only instance that the FSCS protection is guaranteed to work (ie you get up to £85k back) is by ensuring your savings are not in the same bank as your mortgage? Ie. you are not forced to merge your savings with your loans / debts when the Bank are in trouble?

Thanks

Rodp

Bermonia

In essence the protection you are looking for would not really be afforded as if the bank went bust then funds would go against outstanding debt as such you would not be deemed to be at a financial loss - this would change however for any amount in savings above what is outstanding in debt.

rodp_2

Hi Bermonia,

Agree, but imagine the scenario, you have an offset mortgage but tehre are no T&C's regarding setoff. In the situation of the bank going under would you as the customer have a choice to withdraw your money from the savings side of the mortgage product and be left with the bigger mortgage? Sometime you may want to do this if for example you're needing a large chunk of capital.

Putting it another way....In terms of FSCS rules, is it the customer who's preference takes priority to claim back upto £85k or is it the banks (who would no doubt want to keep hold of the money to pay off the debt (again, if they don't have the correct T&C's talking about setoff)?

Thanks

Rodp

getmore4less

No good looking at the mortgage T&C look at your current accounts and savings accounts.