Offset mortgages: new compensation rules explained

Is there any chance there wouldn't be sufficient funds available from the liquidator?

It depends where in the ladder the offset mortgage holders come in the list of importance to receive funds back from administrator. This article does not answer this.

RE Still concerned

There is no cash involved for the bust bank to reduce the mortgage debt from £250k to £235k - you just owe them less.

The bust bank will probably sell the debt to another institution but it is now worth less to the purchaser than it would have been without the offset. So bust bank gets less and their unguaranteed creditors have less from the sale to share out..

I e-mailed the FSCS on 10.1.2011 as well as posting fears on Citywire because of the confusion & the different views expressed in the press & Citywire. Lorna is quicker to answer the specific query with regard to those with offset accounts with a credit balance higher than the compensation limits but lower than the mortgage. This is now logical & helpful. It is a pity that the FSCS were absolutely incorrect when I telephoned with this query early this month....let us see whether they answer my question more accurately this time!

The question of whether or not the liquidator will have a legal duty to pay off ones own mortgage with ones own credit balance before other calls on assets remains to be answered & I am minded to reduce our joint credit account to 170,000 .

Perhaps,Lorna,you are now getting a headache but do you have the energy to keep going & see what the liquidators approach would be?

cheers, John

What will be the situation where Family offset is used , parents deposits but not a party to the son/daughters actual Mortgage ??

If two parents hold a £100K deposit each as an offset on adult childs £250K mortgage and the lender defaults, will the whole £100K each be safe with £85K being covered by the new Guarantee and the £15K balance being allowed against the mortgage debt ? or is the excess over £85K each at risk of loss as the Mortgage debt is not in the same name as the Offset depositor ?

Wow! Grapevine has another spin! In this case the excess looks to be at risk but what looked straighforward before Christmas now looks so complicated!

My wife and I are, at the moment, one of the few who are in the position where this matters. We have a six figure offset mortgage and, temporarily, a very much larger six figure credit balance spread across several accounts all with the same provider.

It seems to me that the only really sensible arrangement is to ensure that our maximum deposit with this institution is £170,000 and to move the rest of the money. I say this because I have had experience of buying assets from liquidators and in my opinion they take forever to do anything (on 2 occasions I reached the conclusion they were deliberately prolonging the liquidation until they had extracted all the available cash as fees). If our mortgage provider goes belly up I bet all our money will be frozen for months (years?) until the liquidator has decided what to do.

Also, as I have said here before, I really do not think there will be enough money in the system to compensate depositors if a really big bank goes bust.

If anyone had suggested that one would distrust any of the big banks when I was a child they would have been laughed at. Midland bank disappear from the High Street? Ha Ha Ha. Silly boy. Halifax Building Society at risk of default? Absurd. LLoyds need to be rescued by the government? Rubbish, can't possibly happen.

Nowadays - God may know which banks will still be there in 5 years' time, but I don't.