"It’s important to carefully consider your mortgage agreement before deciding to overpay your mortgage, as you could be charged extra by your lender"
Rising interest rates have seen a 10% reduction in the number of homeowners who regularly overpay on their mortgage, according to research from Comparethemarket.
Further analysis revealed that as a sign that some borrowers could be trying to squeeze in higher overpayments before they next remortgage and face higher repayments, 27% increased overpayments over the past year. An additional 28% have maintained their existing amount, meaning 55% of mortgage holders have either maintained or increased their overpayments over the past year.
Recently, NatWest announced that it would allow borrowers to double their overpayments and clear up to 20% of the remaining balance each year without paying an early redemption charge for doing so. People can choose to overpay their mortgage on a monthly basis or by making a lump sum payment. The research found the average monthly overpayment currently stands at £421, and the average lump sum stands at £975.
However, overpaying by too much can incur additional costs or fees. Most lenders typically limit how much you can overpay in a 12-month period to around 10% of the overall mortgage balance.
However, the potential for more base rate increases this year could squeeze finances further. Amongst those who have decreased or stopped their overpayments, 86% blame the rising cost of living for squeezing their finances. Rising bills are the leading cause of these households’ financial concerns (71%), followed by rising mortgage costs (31%), and the desire to save money for something other than their mortgage, such as an emergency fund (21%).
82% of mortgage holders have also cut back on household spending to cover the cost of their mortgage. Many have been forced to reduce essential spending, with 34% cutting back on food shopping to afford their mortgage. Eating out (46%), buying clothes (42%), and leisure activities (40%) are some of the other categories mortgage holders have reduced expenditure on.
Many mortgage holders have also tried to increase their household income to afford repayments. Almost one in three (30%) are using cashback and rewards, 29% are selling unwanted belongings, and 23% have taken on more hours at work or applied for a higher-paying job.
Alex Hasty, director at Comparethemarket, said: “The sharp incline in mortgage rates we’ve seen over the last twelve months is not something many households could have predicted. Many have seen their repayments skyrocket, with an overwhelming majority having to reduce their everyday spending to keep up with these repayments. With potentially more base rate rises to come, those who are still able to overpay on their mortgage may not feel as confident doing so later this year.
“However, it appears a significant number of homeowners are attempting to bring down their overall mortgage debt through overpayments before they next remortgage and face higher interest rates. For those who are able to do so, overpaying on your mortgage can save a significant amount of money in the long term.
"It’s important to carefully consider your mortgage agreement before deciding to overpay your mortgage, as you could be charged extra by your lender. To help relieve financial pressure, it’s also worth reviewing other household bills too to see where you could save. For example, households could save up to £374 on motor insurance and up to £159 on home insurance by switching through Comparethemarket.”
