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Mortgage overpayments increase by 50%

Mortgage overpayments increase by 50%

Wednesday, 25 February 2009 11:41 AM

Mortgage customers making overpayments have increased by 50 per cent in the last year, according to research released today by the Co-Operative Bank.

The new figures also reveal people's motivations behind making overpayments, with 80 per cent doing so because they believe it makes financial sense, due to the current low return on most savings rates.

The Co-Operative Bank also found some 37 per cent of people making overpayments were doing so because their rate has fallen due to the drop in base rate, and almost one in ten are hoping to secure a better mortgage deal by making overpayments.

Terry Jordan, head of mortgages at The Co-operative Bank, said: "Our internal data has shown a 50 per cent increase in our mortgage customers making overpayments. It would appear that with interest rates now at an historic low, customers are recognising more than ever the benefits of making overpayments."

The figures also identified why people were not overpaying on their mortgage. Apart from lack of income, almost a third of those not overpaying would prefer to put their money into savings and 24 per cent of people are spending any excess money they have on holidays and clothing.

Mr Jordan added: "Providing their mortgage allows the flexibility to overpay, at the current time it can make real financial sense for customers to make even small monthly overpayments, as these can really add up to a large difference over the lifetime of the mortgage."

Overpaying on your mortgage could have several advantages, according to Sharon Bratley, chartered financial planner at Fairinvestment.co.uk.

"The cost of borrowing is at an historic low which means many homeowners are enjoying lower monthly mortgage repayments," Ms Bratley said.

"By keeping repayments the same level as they were before the cuts, homeowners could make significant overpayments on their mortgages without really noticing any difference to their budgets, which potentially means saving £1,000s in interest and taking years off the mortgage term.

"Overpayments also reduce the LTV on a mortgage, and with higher LTVs more and more difficult to come by, if you can reduce your LTV it could make it a lot easier to remortgage in the future."

A spokesperson for the Council of Mortgage Lenders (CML) added: "Many borrowers are now benefiting from lower mortgage rates and as a result are considering overpaying on their mortgages to reduce their mortgage balance and protect themselves against falling house prices.

"Overpaying on your mortgage will improve your equity position, reduce your interest payments and can shorten the length of your mortgage.

"And now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans."

Sarah Garrod