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More Mortgage Borrowers are Overpaying

22/12/2023

With low interest rates here to stay for the foreseeable future, many mortgage borrowers are taking the opportunity to pay off their home loans more quickly by overpaying. This particularly applies to those who have only recently taken out their loans. Research by the Council of Mortgage Lenders (CML) suggests that almost one third of those who have taken out home loans since 2005 (almost seven million in total) have deliberately overpaid, either regularly or on an ad hoc basis as they can afford it. The extra payments have totalled £31 billion.

A CML spokesman said, ‘The slashing of interest rates to their current historic low point has helped many borrowers make additional capital repayments. In doing so, they have built up a bigger equity stake in their property and reduced the impact on their finances of any subsequent rate increases. They will also have increased the likelihood of being mortgage-free sooner than anticipated, all of which increases their options should their financial circumstances deteriorate.’

In calculating its figures, the CML was rigorous in which customers to include, ignoring for example any who had overpaid by less than 5% of their scheduled payments as they felt this could slew the figures. They also ignored anyone who had, by overpayment or lump sum, paid off their mortgage entirely. The survey covered those taking out new mortgages between 2005 and 2011, giving a field of almost seven million mortgages. It found that the average overpayment in the qualifying borrowers was over £13,000 although many overpaid by less than £5,000. These were offset by those who overpaid by £20,000, ten per cent of the total considered. These figures do not square with those of the Bank of England who have calculated that there is little net overpayment taken over the whole 11 million mortgages currently held in the UK, but as the CML took a different range of borrower, this, they say, is perfectly acceptable.

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