Financial Services Compensation Scheme - Net Claim?

deFoix

Hi all,

Sorry if this has been asked before. If I have a over £85,000 in my current/savings account, and an outstanding mortgage balance (or any other debt) with the same bank, is any FSCS claim based on the net position? So for example if I owe the bank £100k on my mortgage but have £90k in savings then in the case the bank goes bust because I have a net debt of £10k then I won't be entitled to any compensation -  but I won't loose any money.  An alternative scenario is that the bank might be allowed to sell it's mortgage book so I would be still on the hook for £100k but only receive $85k in compensation and therefore loose $5k.

Thanks.

masonic

Loans would continue to managed in line with their terms (by the administrator or another firm if sold), so unless the terms would permit offsetting against savings, it would be reasonable to assume you'd put in a claim to the FSCS for the full balance of your savings.

AnotherJoe

I very much doubt it, the scheme applies to your balance in savings, not any kind of totalling overall savings and debts.  Suppose you had mortgage at another bank thats part of the same group for example? How woudl that work? Or even in your example, your mortgage would as a result be paid off with no say so from you. Maybe that £90k needed to be repaid to someone else or used for something in a months time. etc etc. It could get very complex and very messy and unjust very quickly.

deFoix

Ok, so you're saying that in the example I gave that I would be loose $5k owing to the £85k compensation limit?

deFoix

Seems very unfair though. If the bank owes me and I ow the bank then the just thing would be to work out the net position and apply any compensation (or remaining debt) from there.

masonic

deFoix said:

Ok, so you're saying that in the example I gave that I would be loose $5k owing to the £85k compensation limit?

Yes, don't save more than £85k with a single bank.

deFoix said:

Seems very unfair though. If the bank owes me and I ow the bank then the just thing would be to work out the net position and apply any compensation (or remaining debt) from there.

You signed a loan agreement that doesn't provide for that. If you want to avoid this issue, either save your money with NS&I where the compensation is unlimited, or spread your savings around. Or pay off some more of your mortgage.

deFoix

Are you sure this is the legal position? Do you have any references by any chance?  Not being argumentative, just genuinely curious.

masonic

deFoix said:

Are you sure this is the legal position? Do you have any references by any chance?  Not being argumentative, just genuinely curious.

Exhibit A would be the terms of your mortgage agreement, Exhibit B would be the terms and conditions of your savings account(s). I don't have either, but you do. Check through them and see under what circumstances the bank can use your savings to satisfy your debts. I doubt you'll find the bank entering administration to be among them.

SFindlay

deFoix said:

Seems very unfair though. If the bank owes me and I ow the bank then the just thing would be to work out the net position and apply any compensation (or remaining debt) from there.

Not unfair in the slightest, if the bank has gone out of business then it has creditors to pay. Your house belongs to bank until you pay mortgage off therefore administrators have to recoup what assets they can and your house is a bank asset!! Would you prefer they repossess your house (since it belongs to bank) or allow you to continue paying hour mortgage??? 

deFoix

SFindlay said:

Not unfair in the slightest, if the bank has gone out of business then it has creditors to pay. Your house belongs to bank until you pay mortgage off therefore administrators have to recoup what assets they can and your house is a bank asset!! Would you prefer they repossess your house (since it belongs to bank) or allow you to continue paying hour mortgage??? 

Yes but by the same token my "deposits" in my current account are owed to me (*my* assets) so why should the bank get to write these off but still keep their mortgage asset?

Linton

SFindlay said:

deFoix said:

Seems very unfair though. If the bank owes me and I ow the bank then the just thing would be to work out the net position and apply any compensation (or remaining debt) from there.

Not unfair in the slightest, if the bank has gone out of business then it has creditors to pay. Your house belongs to bank until you pay mortgage off therefore administrators have to recoup what assets they can and your house is a bank asset!! Would you prefer they repossess your house (since it belongs to bank) or allow you to continue paying hour mortgage??? 

This is a common misunderstanding.  The mortgage lender does not own your house, you do.  What the mortgage lender owns is a charge on your house so that on maturity any remaining debt can be taken from the value of the house.  The bank cannot repossess the house unless you fail to meet the terms of the mortgage.