I recently wrote about the ability to protect your savings by taking an offset mortgage. My mortgage broker friend has just given me an update to clarify the situation.
If you hold savings and debt (mortgage, loan etc) with a single institution then it is your NET position which is used to determine what you owe or are owed should the bank collapse. This is not a feature of offset mortgages in particular but I mentioned them because the interest you save is tax free which is a nice bonus. Anyway, here’s an excerpt from Barclays website:
The Financial Services Compensation Scheme (FSCS) is the UK’s statutory fund of last resort for customers of authorised financial services firms. Among other things, the FSCS protects customer deposits with authorised financial services firms. Barclays Bank PLC is an authorised financial services firm and so our customer’s deposits are covered by the scheme. The maximum level of compensation payable under the scheme for deposits is £35,000 per person. The level of compensation is effective since the 1 October 2007. If a bank were to go into default, the FSCS would consider the overall net claim.
This means that if the claimant’s borrowings exceeded his/her savings, there would be no overall claim against the bank, and the claimant would not be entitled to any compensation. For example, if a customer had a mortgage of £200,000 and savings of £150,000 with the same bank, set-off would be applied As a result, the individual still owes the bank £50,000. There would be no positive balance and no claim. If, however, the savings exceeded the mortgage, the compensation rule of £35,000 would come into play.
So there you have it from the horse’s mouth.