85k FSCS protection related question

spfc

Hi all, been a reader of this forum for a while and after much reading haven't found the answer to this.

I'm aware of the 85k protection to savings and was wondering what happens if you have a lot more than 85k in a single bank as well as a big mortgage with the same bank, what would actually happen if said bank went bust?

I'm not expecting my mortgage to be cleared, but would expect that if I have both money in saving as well as a mortgage debt with the same institution whoever takes over the bank operations take into account my credit as opposed to only what I owe.

Am I right in thinking I'm less at risk in that scenario as opposed to having a big sum of money (over the 85k) in one bank?

Thanks

eskbanker

As the processes for dealing with savings and mortgages post-failure would be quite different, I don't believe that FSCS would apply some sort of offset to apply the mortgage debt to reduce a large savings balance to a 'net' smaller one, but haven't been able to source a definitive answer from some reading, in articles such as:

https://www.thisismoney.co.uk/money/mortgageshome/article-7908539/I-mortgage-savings-bank-goes-bust.html
https://www.property118.com/insolvency-compensation-rules-for-deposit-and-mortgages/

However, holding a huge >£85K savings balance while concurrently funding a large mortgage doesn't seem a very sensible approach, so anyone in this situation would probably be better off reorganising their finances anyway....

dunstonh

Mortgage business with a clean book as an asset to the administrator and can be sold to another lender.
Mortgage business with a high proportion of high risk borrowing would be moved to the bad bank book and maintained with a view to selling on later.
The savings book of a lender could be bought by an entirely different bank to the mortgages.

There is no offsetting against deposits.

Stenwold

Anything in excess of the protected 85k is likely to be automatically taken off your debts (with the same financial institution) when the administrators are called in.

spfc

Hmmm.. a couple of different responses here, thanks all

Property investor and not the best time for buyers with house prices through the roof so money will need to sit somewhere between transactions. Guess it's safer to take the safe approach and spread the savings with different banks even if for a short period of time then.

Eco_Miser

NS&I is guaranteed up to the maximum allowed in the account. Interest is near zero though.

MoJoeGo

This is a question I looked into myself about 12 years ago when Mrs MJG and I were arbitraging available funds from our Santander offset tracker mortgage with base rate tracker savings bonds from the same bank.

We concluded that while the bank itself has set off rights written into its T&Cs for any claim against us, it wasn't clear that it would work the other way round. So while we had the opportunity to make a lot more 'free' money, we limited ourselves to just taking 150k out of the mortgage to invest in Santander's bonds (joint account, was a 75k FSCS limit at the time). 

Would however be interested to know if there are any real world test cases here...

Daliah

Your answer is on the FSCS website, in the FAQs

Thrugelmir

spfc said:

Hmmm.. a couple of different responses here, thanks all

Property investor and not the best time for buyers with house prices through the roof so money will need to sit somewhere between transactions. Guess it's safer to take the safe approach and spread the savings with different banks even if for a short period of time then.

The main UK banks aren't at risk as they were in mid 2008. The world has moved on. Balance sheets are now greatly deleveraged. Annual stress testing by the BOE. Basle 3 regulation implementatation by 2023. 

dunstonh

Thrugelmir said:

spfc said:

Hmmm.. a couple of different responses here, thanks all

Property investor and not the best time for buyers with house prices through the roof so money will need to sit somewhere between transactions. Guess it's safer to take the safe approach and spread the savings with different banks even if for a short period of time then.

The main UK banks aren't at risk as they were in mid 2008. The world has moved on. Balance sheets are now greatly deleveraged. Annual stress testing by the BOE. Basle 3 regulation implementatation by 2023. 

Plus, retail banking has been split from other types of banking

spfc

Thrugelmir said:

spfc said:

Hmmm.. a couple of different responses here, thanks all

Property investor and not the best time for buyers with house prices through the roof so money will need to sit somewhere between transactions. Guess it's safer to take the safe approach and spread the savings with different banks even if for a short period of time then.

The main UK banks aren't at risk as they were in mid 2008. The world has moved on. Balance sheets are now greatly deleveraged. Annual stress testing by the BOE. Basle 3 regulation implementatation by 2023. 

That makes sense, just doesn't mean the FSCS protection rules are overlooked and ways to mitigate the risks implemented.