Offset mortgages and the Banking Protection Scheme

MuddledOfMiddlesex

I don't know if this has been discussed - tried a search and couldn't see anything - but I am wondering whether anyone knows the likely outcome regarding Offset mortgages if the lender goes bust.

I realise that the protection scheme only covers deposits up to £35K and obviously it's sensible to spread the money around. However, my partner has an Offset mortgage - part of the reason for this is that I brought a chunk of equity from the sale of my property AFTER he'd already taken out the FD mortgage, so to remortgage in both our names would have involved paying stamp duty etc all over again. Also I have always found Offsets useful because I am self-employed and it makes sense for me to 'keep' my tax earnings in the account, offset against the mortgage, until they're needed as it's more economic than putting in a savings account.

For that reason, we have more than £35K in the joint account that is Offset against the mortgage. In fact, if you count the offset money, the mortgage is nearly paid off, but we like the flexibility of being able to get access to the money (to pay the taxman apart from anything else) or to fund home improvements. Should we be rethinking? In an ideal world, of course, any savings we're offsetting ought perhaps to be taken into account with the mortgage if our bank did run into trouble i.e. if we had a mortgage of £100K with £75K in the offset, the £75K might be counted as paid off - but I doubt it'd go in our favour somehow...

I know the chances of a bank going quite that wrong used to seem very low but now...well, I am wondering. Should we give up a system that gives us flexibility and keeps mortgage interest low, because of a small risk that we could be wiped out financially?

It might seem quite a specialised situation, but I wonder, given the growing popularity of Offsets and the advantages for self-employed people like me, it might be more common than we'd think.

[Deleted User]

http://forums.moneysavingexpert.com/showthread.html?t=803821&highlight=offset+mortgage

dizzie

Hi - we are in a similar situation. However, it was my belief that the guarantee of £35k security on savings was per person. Therefore, if you have a joint offset account, you should get security of £35k each (i.e. £70k total).

Incidentally, with our offset, you are only allowed to offset in savings 80% of your current mortgage balance (no interest is earned to be able to offset on amounts above the cut off figure of 80%).

So for us, we keep our savings balance below the £70k mark on two grounds: - (i) We shouldn't lose our savings if anything goes wrong
(ii) Anything saved above £70k would break our 80% threshold and would
not gain any interest (either for savings or offset purposes)

MuddledOfMiddlesex

Thank you, Van1971, obviously my searching head not working well today!

Yes, Dizzie, I see your point. For us, the amount is a bit more than the hypothetical £75K though and I don't think that threshold exists so it's still a bit of a dilemma. I shall now read the other threads in more detail. Sorry for repeating the question.