How is offset mortgage and savings treated if bank goes bust?

louisdog

Does anyone know what would happen if a bank goes bust and you have a mortgage and savings in an offset account with them?

I have a mortgage with IF.com and some savings offset against it, if they went bust would I lose the savings? or would it all be treated as one pot and I'd just owe them the balance of the mortgage less the savings?

I can't seem to find anything in the T&C ...

louisdog

Just a general question. It just seems like a major disadvantage to offsets, am wondering whether to pay down the mortgage a little with the savings. Blame the doom and gloom in the weekend papers, discussion of which prompted the question!

Trying_to_be_good

The first £32,000 of savings (approx - someone else will know the exact figure) is safe - easiest option is probably no to let the offset bit go above that. Once you reach that point, start paying directly off the mortgage.

dweeby

Trying_to_be_good wrote: »

The first £32,000 of savings (approx - someone else will know the exact figure) is safe

Are you sure? have a read of this. Ooer!

An anomaly in the compensation rules means holders of offset mortgages could lose out if their loan provider goes bust. The anomaly concerns the savings element of an offset mortgage loan.

Dan_Collins_2

HBOS are looking a little weak at the mo. Shares are down. I doubt they will go bust as such, they will suffer a little. May be only a few billion £££'s of profit this year!!

MissEyre

What would it mean for mortgage holders with HBOS mortgages generally then, if they do go under?

Trying_to_be_good

The loan book would be bought by someone else who would then collect the repayments. Mortgages wouldn't be written off, and any changeable preferrential flexible terms may disappear.

Trying_to_be_good

dweeby wrote: »

Are you sure? have a read of this. Ooer!

An anomaly in the compensation rules means holders of offset mortgages could lose out if their loan provider goes bust. The anomaly concerns the savings element of an offset mortgage loan.

I understand the point, but if it's a separate account (i.e. linked savings, not a current account mortgage), particularly if it's ISA offset, I don't think they'd get away with not compensating it.

silvercar

There was a discussion on this (on here and in papers) not so long ago.

If your offset mortgage is a current account one eg FD, OneAccount etc then you may find your mortgage is reduced but you have no access to the savings element. The net effect is nil, but you could have a liquidity problem if you couldn't raise the original mortgage amount elsewhere ie if your circumstances had changed.

If your offset mortgage operates as a separate savings account eg some of the smaller building societies, your savings remain separate so it would be sensible to restrict the amount in the savings account to £35k (£70k joint) and use any further savings to reduce the mortgage balance.

The real losers would be large mortgage holders where the mortgage is nearly all offset eg mortgage of £500k, savings of £400k!

silvercar

Link to previous discussion:

http://forums.moneysavingexpert.com/showthread.html?t=757227&highlight=offset+Times