Offsetting-how safe now?

busy_b

As I want to be mortgage free I opted to offset all my savings against my 36k mortgage. (I intend to tell them to take approx 5k a year and actually pay it off "really" in stages).

It's interest only and so I pay nothing monthly and can choose to just pay it off completely at anytime I want to. (I place my original monthly mortgage figure into an Isa to build up further savings).

I thought I had been quite clever, However, due to all the hype now with the safety of savings accounts in Major Banks, etc I wondered if I have made the right decision.

I would not be comfortable paying it all off in one lump sum and thought offsetting was the best option BUT how safe are my savings that I use to offset?

I'm aware that the government guarantee the first 35k but would that apply with the offset arrangement, someone has stated that I'd have a zero net figure due to the interest situation ! Surely my savings are still savings whether they gain interest or not or whether they're used to offset my mortgage!

Any ideas?

mrs_deadline

hi busy b, sorry I don't know the answer but I would be interested to see if anyone has definite info. Waiting to hear back from Nationwide at the moment after writing in to ask if the deposit protection scheme applied. It seems to be taking them quite a while to reply... maybe they don't know either!

busy_b

Thanks for responding, I can't believe it, I only remortgaged recently following loads of discussion on here and thought I was being clever going down the offset route !

I'm sure Savings are Savings and they should be covered, hope someone can clarify !

Strapped

Sorry, I don't know the answer, but extremely good point!

busy_b

Apparantly the savings used to offset are guaranteed like any other savings (according to Barclays), however they seem reluctant to explain my situation in writing. (Probably due to all the bad press they've had recently).

Anyway, I'm going to pursue it further and if anyone on here can put my mind at rest, I'd appreciate it.

silvercar

From the FSCS website:

5. What happens if I owe money to a bank, building society or credit union that fails?

Amounts owed to the failed firm (for example, loans, mortgage or credit card debts) are taken into account before any compensation is paid.

Debt_Free_Chick

busy_b wrote: »

I'm aware that the government guarantee the first 35k but would that apply with the offset arrangement, someone has stated that I'd have a zero net figure due to the interest situation ! Surely my savings are still savings whether they gain interest or not or whether they're used to offset my mortgage!

Any ideas?

If your savings are in a separate, designated account, then they are protected. So you would still have £35k to pay off your mortgage. You might lose some or all of the additional £1k you have.

If they're not in a designated account, but in some "virtual account" attached to your mortgage, then you don't have any savings ... but you don't owe anything on your mortgage anyway.

You might want to contact the FSCS and ask them.

busy_b

Thanks again, if nothing else, it has prompted me to look exactly at how the offset works with regards to my savings.

I believed them to be in a straightforward savings account that earned no interest (and just offset my mortgage interest). I never thought of any virtual or other type of account.

I wish I had the bottle to pay the 36k off and have done, once and for all but I don't just yet !

busy_b

Here's my update (Silvercar, Mrs_Deadline, Strapped)

Received e-mail back from FSCS today - can anyone clarify? (My head won't work today - are my Savings covered or not?) Thanks again for any responses.

have spoken to our Legal Department, and this is their response:-
Whether or not the mortgage and savings would be set off will depend upon whether the deposit taker is entitled to do so.
This would apply to an offset mortgage as well.

Accordingly, it would depend on the bank or building societies terms of business and the extent to which they were
entitled to set off the mortgage against any deposits for the purpose of quantifying the 'overall net claim'. The position of
building societies and banks is not the same under insolvency law, so that automatic set off may not apply on the
insolvency of the building society, whereas it would be automatic on the insolvency of a bank.

mrs_deadline

As I read it, it's saying that banks automatically have to set off all borrowings against savings before the FSCS kicks in, but building societies may or may not, depending on their terms and conditions.

mrs_deadline

busy b, it would be worth posting your information in Martin's "are your savings safe" thread, as his article doesn't mention either offsetting or the banks' right of set off.

http://forums.moneysavingexpert.com/showthread.html?t=565058