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David Hollingworth, head of communications for Bath-based intermediary London & Country Mortgages, said he had spoken to the Financial Services Compensation Scheme (FSCS) and discovered offset mortgage holders could have more than £50,000 of their savings secured if their bank went bust.

Speaking at Intelligent Finance's roundtable event, held at the Financial Times headquarters in conjunction with Mortgage Adviser, he said the FSCS stated amounts owed to the failed firm, such as a mortgage, were taken into account before any compensation was paid.

If a firm were to fail, Mr Hollingworth said the FSCS would consider a depositor's overall net claim, which would include taking into account any amount owed the firm may set off against their outstanding mortgage balance.

Mr Hollingworth said: "If you have borrowings and savings with the same institution the indication is they will set the savings offset against the borrowing.

"For example, if you have £60,000 in savings and owe £100,000 on the mortgage then they would say you owed the institution £40,000. So that is opposed to saying you can have £50,000 back in compensation and you still have £100,000 mortgage."

However Mr Hollingworth said borrowers would not get the choice as to whether they could choose to pay off their mortgage or seek compensation.

Michael Coogan, director general of the Council of Mortgage Lenders, said he had been similarly reassured about the security of savings by the FSA and that this development could further boost the popularity of offset.

He said while offset enjoyed exceptional growth in 2006, this decelerated in the first three-quarters of 2007 so that growth in offset was less than that seen in the wider market.

However, he said since the credit crunch had hit the trend had been reversed, with offset lending considerably out-performing the wider market.

While regulated lending overall had contracted year-on-year in each quarter since the third-quarter of 2007, Mr Coogan said offset lending had grown in each quarter since then.

He said: "The offset phenomenon is here to stay and continues to build on its reputation, despite the credit crunch.

"We do not see any discernable change in the affordability profile of offset borrowers when compared to others since 2006. Offset borrowers are on higher incomes on average, take out higher value properties but only slightly larger loans, and as such have considerable lower loan-to-values - 56 per cent for offset borrowers compared with 66 per cent for all borrowers."