Offset Mortgages - Are You Protected? - Hot Topics Q & A

Q. I am a fan of offset mortgages, and have achieved large  savings by 'parking' my tax monies and linking my current account. As a surgeon now in my late 40s, the amounts I am holding in my offset deposit account are around the £150-£200,000 mark, against a debt of  £650,000.

I am, however, a little nervous as there is talk now that if a bank fails, then I will only be protected up to £35,000 meaning I would lose up to £140,000!

Is this right?

A. This is a very good question, and with the present climate a very topical one. After much detective work by many people including us, the answer to your question is now clear.

The £35,000 Financial Services Compensation Scheme (FSCS) rule says that you are guaranteed this amount per person per organisation.  However, Offset mortgage holders will NOT get special treatment.

For example - a couple have a mortgage of £250,000, with offset savings of £100,000 jointly held. Their bank has difficulties, and they become subject to these rules. Since it is in both names, the couple are eligible for £70,000 compensation.

This means that £30,000 simply disappears! 

The only way for the couple to get it back is to go through the bank's liquidator. Of course this situation has not happened before, and is unlikely to happen, and the advantages of offsetting are huge.

However, it does make you think! Should you limit the offsetting to £70,000? It’s really down to personal choice and your view of risk.