Offsets are not offset

magicdogsbrain

I cannot believe the bombshell Martin has just unleashed in his article regarding safe banking and offset mortgages.

If you have a £150K debt and have offset by 50k (i.e. you owe 100k) - and the bank goes belly up - you end up owing 115K.

I knew that you are only guaranteed 35k savings - but I didn’t realize that your debt is not considered in your arrangement with the bank! Surely if you owe 150K and you have 50k in offset - you owe £100k - you don’t really have anything! How can they take money off you that you have not got!

Sorry - I don’t believe it - I can’t be true.

If this is true - it is going to cause a stampede out of offset mortgages! There are loads of people who have offset almost their entire mortgage.

Are you saying someone with debt of 150k and offset of 150k will owe 115k if the bank goes bust? No no no way – that would be criminal surely!

minimike2

Lets get it into perspective here and stop the scaremongering...

Banks going "bust" is not an every day occurance.

Northern Rock went under due to an unsustainable business model that was not properly supervised by the FSA.

I know of building societys that now have to have daily reports to the FSA on thier liquididy situation as a direct result of the Rocks failing.

Banks just dont go "bust" for no reason.

The press (Martin is the Press dont forget) are there to "report" and they sensationalise as part of thier reports. Its thier jobs...

The facts are correct yes, but to imply that everyone with an offset should limit thier offsetting to £35k because of course every bank is about to go bust, is just scaremongering. (Which by the way, is what ultimately brought on the downfall of northern rock....the press and thier reports)

silvercar

This has been discussed in the "how safe are your savings" thread on the savings & investment boards and on other boards for a while.

Martin's article amended the version that said your savings were safe, to say that they might not be.

Really I think it is a failing of the FSCS not to make a statement one way or another to give a clear picture.

The issue is rather more complex than simply saying the savings are not safe.

As I understand it, if you have a current account mortgage (CAM) eg OneAccount, you never actually have a savings account, just a negative balance on your current account and a borrowing facility, so your "savings" should be safe.

If you have an offset savings mortgage and the lender has (in their terms and conditions) reserved the right to offset, or similar wording, then your savings are probably safe, in that the lender has said they will put savings against borrowing if they need to.

If you have an offset savings mortgage without the key phrase then your savings are not 100% safe.

Do remember that the chances of an individual lender going bust and not being bailed out by the government and you not having time to rescue your money are small. And it is this risk that you must balance against the financial benefits of an offset mortgage.

It is annoying because the whole point of an offset mortgage is to have access to your savings when you need them. If you have to drop them to 35k and reduce your mortgage whenever your savings mount up, it does partly defeat the purpose of the facility.

surreysaver

No - this is not correct. Any savings you have with a bank are set-off against any debts. If you owe the bank more money than you have saved with them, your savings are safe. If you have a £150k mortgage with £50k offset, and the bank goes belly-up, you owe the bank £100k and they owe you nothing. The FSCS is nothing to do with it, as you are not owed any compensation, it outside of their remit. Martin has obviously been reading Fool.co.uk - a similar row has broken out on there. If any company goes bust (not just financila institutions), if you owe more than they owe you, you are safe. The problem with an offset mortgage is you would just lose the liquidity of your savings - they would infact be used to pay off a chunk of your mortgage.

surreysaver

minimike2 wrote: »

Lets get it into perspective here and stop the scaremongering...
The facts are correct yes, but to imply that everyone with an offset should limit thier offsetting to £35k because of course every bank is about to go bust, is just scaremongering. (Which by the way, is what ultimately brought on the downfall of northern rock....the press and thier reports)

If the facts are correct, then for a joint mortgage, you would obviously limit the offsetting to £70k... and make sure you have no other savings with the same group.

magicdogsbrain

Just looking at http://www.fscs.org.uk/consumer/faqs/deposit_claims_faqs.

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. We may also take steps to recover any amounts owed by depositors.
So – say you have 35K in savings account and a 10K loan. They will only give you 25K – agreed (because they take the debt into account)?

So – say you have 100K in a savings account with a loan of 40k (with same bank). FSCO would take into account the 100k you owe – so you are 60 k in debt – you have nothing to be compensated for. You are still 60k in debt – surely!

I cant get my head around “debt taken into account” and -150+50=-115!

surreysaver

magicdogsbrain wrote: »

I cant get my head around “debt taken into account” and -150+50=-115!

Which is why people shouldn't believe everything you read in the paper/on the internet or see on telly. You'd have to be daft to carry on paying the company more money than you'd owe them anyway!

MSE_Martin

The press (Martin is the Press dont forget) are there to "report" and they sensationalise as part of thier reports. Its thier jobs...

I take umbridge at this comment. My job is to provide correct information and I work hard to do it. My article talks about what protection you have. It's context is about how unlikely it is but not impossible.

I add in every sentence, If IN THE UNLIKELY EVENT, a bank went bust - just to re-emphasise the point.

WE've had scores of questions about offset accounts and tried to clarify it - evne thought he FCSC makes that rather difficult.

To accuse this of being inaccurate sensationalisation is unfair and unwarranted.

Martin

minimike2

Im sorry you feel that way, its my honest opinion though. I have said in the past that parts of the site are great and give some really good adivce and I congratulate you and the team for that. However some of the content of the site is dangeriously misleading and my opinion on that will never change (unless of course the parts in question change) and can often give people the wrong idea.

By the way, I totally agree the FCSC is unclear in relation to this matter and my statement was a generalisation.

PBA

Surreysaver is spot on. If a company goes bust, it's the total amount they owe you (or you owe them) that's relevant. So if you have a 50k mortgage and 50k savings with the same company, the net result is that nothing is owed either way.

silvercar

PBA wrote: »

Surreysaver is spot on. If a company goes bust, it's the total amount they owe you (or you owe them) that's relevant. So if you have a 50k mortgage and 50k savings with the same company, the net result is that nothing is owed either way.

Your saying that as a fact, when even the FSCS haven't gone that far. If only 35k of your savings are protected and the lender doesn't include an offsetting clause in your mortgage agreement it could be that you would still owe 50-35k=15k.

Nothing is certain.