Borrowers ‘in double jeopardy’ with FSCS rulings

According to Kevin Mountford, head of savings at moneysupermarket.com, a major flaw exists within the FSCS that could disadvantage many people as he claimed that borrowers could find their savings reduced down to nothing in order to reduce the mortgage amount.

Mountford said: “Take the case of someone with £35,000 saved and a £100,000 mortgage. Rather than be compensated by the FSCS with £35,000 to be invested elsewhere, you will find your mortgage reduced to £65,000 and have no savings – potentially leading to financial hardship over the ensuing months.

“Until the FSCS changes this rule, the message is clear – don’t have your mortgage and savings with the same provider, irrespective of whether you only have a couple of grand put away or the top limit of £35,000.”

In regard to how this worked with an offset mortgage, Mountford added: “We have put a call into the FSCS about this, but I am not sure about how it will affect offset mortgages. As long as savings are sitting in an account there is the possibility that the borrower’s money will be affected, even though the two components are treated differently.

"The main message here is consumer confidence and post-Northern Rock it is at an all-time low.”

Neil Johnson, PR & policy manager at the Building Societies Association, commented: “We agree with moneysupermarket.com that the present system, as outlined in its press release, is unfair.

As such, we support the proposal contained in the consultation paper on reform of the FSCS system that would resolve this anomaly and would see savers receive all of their savings back – subject to the upper limit – regardless of any debts they may have to the institution.”