Offset Mortgages and Bankrupt Lenders

Readers Question from Richard Sage: What happens to offset mortgages if a lender goes bankrupt?
i.e. Can one net, or does one have to pay the full loan and get one’s percentage as a creditor for the deposits?
In commerical trading contracts (E.g. ISDA masters) the point is usually specifically addressed.

Everybody thought I was daft raising the question 18 months ago, but Northern Rock shows it was not entirely theoretical.  I went through the small print of my contract (Intelligent Finance) and could find nothing addressing the point. Nor can I find any comment from Web searches.

If one can’t net then I suppose the Treasury would be reluctant to publicise it as it would cause even more money to be withdrawn from Northern Rock.

It’s an interesting question and I’m afraid I don’t really know. It may be that this eventuality was not considered when mortgage lenders developed offset mortgages (the idea of mortgage lenders going bankrupt in the UK has often seemed far fetched)

By feeling is that anybody who takes over a bankrupt mortgage lender would have to honour as much as possible the original mortgage deal. And, I think it is unlikely that consumers with offset mortgages would be disadvantaged. However, I’ll add the answer here in case any other reader may like to answer.