Since the Bank of England’s decision to cut base rate by 1.5 percentage points in November, Lloyds TSB has received over 27,000 requests from customers to set up an overpayment.
Making overpayments is an increasing trend; in November the lender received 7,000 requests while in December over 12,500 requests were made. In the first two weeks of January, 7,900 requests were made and the number is expected to grow further over the coming months as customers get used to lower monthly payments.
Since base rate began to fall in December 2007, the average customer on a £150,000 mortgage is now saving £380 a month.
The combination of low interest rates and making overpayments can significantly reduce the term of a mortgage. A customer who took out a variable rate mortgage in 2007, and maintained their payment at the level it was in December 2007, would have already reduced their term by 11.5 years.
If Bank of England base rate stays at today’s level of 1.5 per cent, and the customer continues to overpay at the same level for the rest of the year, they would take a further year off the term.
Stephen Noakes, C&G marketing director said, “Homeowners with a tracker mortgage are hundreds of pounds a month better off. For those who can spare the extra money, making overpayments is a smart move. Not only can it trim years off your mortgage term, but with house prices falling, overpayments will help to protect the equity in your home.
“A year ago, a number of homeowners were extending their borrowing with further advances. We’re now seeing a definite switch to paying down your mortgage debt.”
In December, Bank of England statistics highlighted the trend amongst homeowners to pay down their mortgage debt. Figures showed homeowners paid a record £5.7 billion off their mortgages in the three months to September, the largest figure since 1970s and more than double the £2 billion repaid in the second quarter of 2008. The Bank said it is only the second time in 10 years that consumers have injected cash into mortgage debt rather than increasing borrowing.
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