Are Offset Mortgages Any Good?

By: Gill Critchley

An anomaly in the compensation rules, concerning the savings element, could mean that holders of an offset mortgage may lose out if their loan provider was to go bust.

With other mortgages, this risk is covered by the Financial Services Compensation Scheme that protects the first ?35,000 of your savings with the bank in the event of it going bust. However; this is not the case with offset mortgages.

Offset mortgagesdon't act as a typical savings account, it is thought of as the savings account reducing the amount of the mortgage instead, so say for example, you have a ?150,000 offset mortgage and have ?25,000 in a linked offset savings account, you would not get the ?25,000 from the FSCS if the bank was to go bust. Instead of this saving, you would end up with a mortgage debt of ?125,000.

A positive thing is that many offset mortgages are provided by big lenders like HSBC who would no doubt be bailed out by the Government if they were to ever go bust. Another more promising outlook is that if a smaller bank was to fail, then the FSCS would come under pressure to change its rules, that is if a large number if people were affected. The other option for a smaller bank would be for another bank to take it over. In this circumstance the new bank will usually follow the terms of the previous bank's mortgages.

The FSCS rule on offset mortgagesis currently under review and there should be some possible amendment information coming out soon.

Mortgages
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Mortgages
 



Share this article :
Click to see more related articles