Do / should mortgage reserves have FSCS protection

Bermonia

Let’s be VERY clear... there’s is not a lender out there who doesn’t have the right to offset somewhere in their t&cs - it’s one of the most basic principles and is there to protect themselves - you can waste your time traveling through t&cs of various lenders but it is a fruitless exercise.

rodp_2

Hi All,

Thanks for all your replies. To go back to my initial question, in my view I am using my savings to temporarily cut my mortgage payments. I want these savings to remain available. The product I have is not an offset mortgage so it seems the normal FSCS protection doesn't apply and I have no protection in the normal sense (but this doesn't matter as the money wouldn't be lost so to speak. It would be merged and reduce my mortgage balance permanently if it all went wrong).

My challenge is to see how likely I can persuade the banks to agree that this reserve is in fact a form or savings account and prevent them from merging the funds but give me the choice to withdraw (recover) it or merge it.

I think we've come to the conclusion that this type of pot has slipped through the net and is not covered by the FSCS protection.
So I will think carefully if I want to challenge the FSCS rule and the banks in terms of their T&Cs and what defines 'savings'.

Alternative and perhaps an easier route, I will perhaps look into a true offset mortgage but only if I feel that the T&C's don't mean the same thing will happen, ie the savings are merged into the debt without my approval first if the bank fails.

Thanks for your expert guidance, it's given me some food for thought.

Rodp

Thrugelmir

A "true"offset account will come at a cost, i.e. a higher rate of interest on the mortgage debt. As the facility needs to be administered.

getmore4less

You have no pot of money with nationwide you have overpaid your mortgage just Nationwide have a drawdown facility that you can borrow it back again.

By your reasoning
Credit card should have its borrowing limit protected as that is a drawdown facility.
Overdraft limits on current accounts should also be protected.

John_G_Jones

This question comes under the “so wrongheaded there must be a misunderstanding” heading.

There is no pot of savings, in practice or in theory, morally or legally, and uit’s not even clear why you would want there to be.

We’re you imagining that if a bank goes bust you no longer owe them money, and imagine that there’s a route to walk away from the debt but also take some of the bank’s own money on your way out?

rodp_2

@John G Jones, A bank going under is the worst case scenario. If this happened I am in agreement that my funds would be merged under the current product I have. I would not be walking away from my responsibilities to the debt. However my whole question was around trying to understand what the FSCS protect and don't and questioning the areas that they don't.

The key thing here is the 'Setoff' term for offset mortgages and that is something I'll investigate. To reiterate, my objective is to ensure I have access to and be able to pay off any large capital expenditures in the near future. Using the reserve will allow this I feel in the most efficient way for my current circumstances.

The reserve allows me to borrow back cheaper than any other loan a bank will provide, you have to agree that BoE + 2% is pretty good?

I have looked into moving over to a Coventry offset lifetime products or equiv over the last year or so but the £1000 fee they currently charge loses any advantage you think you have by my calculations. I'll continue to look though.

if I had enough funds to divide my income into an ISA / savings account aswell as paying off the mortgage then yes I'd do that but at this moment in time, I'm wanting to concentrate on getting the mortgage down.

I'm pretty sure that paying off your loans first is sound advice but if you think that's wrongheaded, please correct me.

@getmore4less... I see your analogy, but for a mortgage they separate the reserve from a monthly payment (which includes both planned capital and interest repayments. You don't have to put money into the reserve of the mortgage if you don't want to but for a credit card you have to pay it off or you get charged an extortionate amount of interest). For credit cards I pay mine off every month as I spend what I can afford. I can't do that with a mortgage so you take a different tack and through the reserve facility I overpay when I can but in the knowledge that if needed that money can come back to me at a much lower cost compared to taking a loan out or not paying your credit card in full at the end of the month. I know you have to pay the mortgage off in the end, but half way through it's life, I want to be in a position where if I need a lump sum, I can get to it but whilst ensuring I can still keep up repayments.

I hope this clears up all your thoughts - there is method in my madness I promise! If you think otherwise, then please suggest a new direction and tell me where that illusive 5% open access savings account is!


Thanks

Rodp

getmore4less

If you have a savings account and any credit account loan credit card etc. under the same financial umbrella they can setoff and the FSCS don't "protect" your savings pot.

If you want to fully FSCS "protect" your access to your money get it away from anywhere you have a debt.

If you do move lender don't forget to withdraw ALL your reserve before moving.

Also by staying on the BMR just to "protect" your drawdown facility you have been paying Nationwide a higher rate than needed for some time the days when BMR was a keeper have been over for quite some time.