In message , Tim writes
Yes, I've been thinking about my reply since I sent it.
The rule of 'set-off' can apply usually in a banks favour BUT the ultimate test will come down to the wording of the underlying form of legal charge.
In days gone by, a banks charge form would cover 'all monies' and would cover, for example, the house purchase loan PLUS the overdraft, personal loan, Access card (although all of these latter items were apparently 'unsecured') etc., and so, equitably, I can see a judge going along with 'set off' in these circs.
Nowadays, the charge form (otherwise known as 'mortgage deed') for a domestic house purchase loan restricts its scope to a specific that loan it secures. This would imply that the debt is separate. BUT if a deposit taker went bust, and the protection scheme was insufficient to cover their liability to you, then what would happen?
After a long think I cant see how a bank's implied 'right of set off' would apply in reverse here, because of the nature and wording of the mortgage deed and loan agreement. This seems wrong and is a result of the Govts intervention in separating mortgage scope.
Although there is a debt of, say, £100,000, none of that is due today, only the next payment and the loan agreement makes this quite clear. So if you have a current account with the bust lender then all you could offset would be the payment currently due. The terms of the debt would still exist and you would still be obliged to keep making the payments.
I reckon a suit for any overall shortfall could only be resolved in equity and could go either way.