There has been a huge amount of press coverage in the past few weeks about worries over mortgage lending. This has culminated in the news that the Bank of England has now provided short term funding to a second well known lender and made provisions for more who may be about to follow. But should you be worried that this might affect your existing mortgage?
The short answer is “No". It is important to remember that a mortgage is a loan that the bank or building society has given to you. It is not you that has invested money with them. The terms of your mortgage will remain unchanged. If the worst happened and a bank went into liquidation the mortgage would simply be taken over by whoever is appointed as administrator to the lender or by another bank if it acquires your lender. There should be no direct impact on your mortgage contract as a result of a lender going bust.
The only issue there could be if a bank or building society fails is if you have savings with them. In this circumstance not all of your savings may be protected. All institutions authorised by the Financial Services Authority, such as banks and building societies, are covered by the Financial Services Compensation scheme. This only guarantees to protect £31,700 of your money. You will receive 100 per cent of the first £2,000 you have in savings and 90 per cent of the next £33,000. For example, if you have £20,000 in savings with a bank which goes bust, you will receive just £18,200 from the scheme.
Taking out a mortgage is a significant financial decision. Getting the right deal in terms of what you pay, the flexibility of the mortgage terms and the customer service you receive is important. But what happens if your lender goes bust should not be a primary concern - its you that owe them the money, not the other way around.
So when looking for a mortgage use a mortgage comparison site that is independent of all lenders, enables you to compare the true cost of mortgages not just headline rates and enables you to apply direct for the mortgage rather than forcing you into the hands of a broker.
