Mortgage holders are collectively making more than £9 billion in mortgage overpayments per year, according to new research (1) from Santander Mortgages.
The findings reveal that one in five (19 per cent) of those with a mortgage currently overpay every month. These 2.5 million people each overpay an average of £181 every month, meaning they are collectively paying an additional £455 million on top of their standard mortgage repayments on a monthly basis.
Another six per cent tend to make a one-off overpayment on their mortgage once a year and a further nine per cent don’t regularly overpay but have done so once in the past 12 months. Those who have made a one-off overpayment in the past year (nearly two million people) overpaid an average of £1,919.
In total a third (34 per cent) of those with a mortgage make some form of overpayment, whether monthly or via one-off payments.
The findings reveal that many have started overpaying in recent months and years, to take advantage of low interest rates. Thirteen per cent of those who overpay every month started doing so in the past six months, 24 per cent within the last year and 54 per cent within the last two years.
Despite the prevalence of overpayments, one in four Brits with a mortgage (23 per cent) have no idea if their mortgage provider allows overpayments at all and a further 14 per cent say their provider allows overpayments but aren’t sure if they charge for them. Another 8 per cent say their mortgage provider definitely charges customers for making overpayments.
Santander, which offers its customers the freedom of overpaying on their mortgage whenever they want to(2), is suggesting that people should consider doing so to take advantage of low interest rates. Its research reveals that of those people who don’t tend to make mortgage overpayments, over a third (36 per cent) say they could afford to, by an average of 18 per cent extra.
Phil Cliff, Director of Santander Mortgages, commented: “If you overpay on your mortgage you will pay less interest over the full term, so it’s a good thing to do if you can afford to. Nearly half of those people who have never overpaid on their mortgage still put money into savings each month, and given the average interest rate on these people’s savings accounts is just 1.6 per cent(3), in the long-term they may be better off using this money to make mortgage overpayments instead.”
In addition to the freedom to overpay, including unlimited overpayments on its Tracker and Flexible Offset mortgage range, Santander’s mortgage range also offers a wide variety of features that give customers the freedom to choose what is most important to them, be it the ability to switch their mortgage, avoid booking fees or get help with upfront costs. The majority of Santander’s fixed mortgage products come with a Free Valuation and £250 Cashback for those buying a home and a Free Valuation and £250 Cashback or Free Legals for those re-mortgaging.(4)
Notes:
1) Opinium Research carried out online surveys of 2,001 UK adults from the 18th to 22nd October 2013. Results have been weighted to nationally representative criteria of individuals and applied to the number of UK adults using ONS figures
£9 billion calculation:
Respondents who have made a one-off overpayment were asked how much they have overpaid by in the past 12 months with the mean average being £1,918.80.
Average amount overpaid by those who made a one-off overpayment in the past 12 months = £1,918.80. Multiply this by the number of people who made a one-off overpayment (1,963,487) = £3,767,538,856.
Respondents who said they overpaid on their mortgages every month were asked approximately how much they overpay by in an average month with the mean average of responses being £180.57.
Average monthly amount overpaid by those who overpay every month = £180.57. Multiply this by the number of people who do so (2,517,291) = £454,547,236 collectively overpaid every month, or £5,454,566,830 over 12 months.
The combined total among those who overpay monthly and those who have made one-off overpayments is therefore £9,222,105,686.
2) Overpayment limits and restrictions may apply.
3) Respondents with a savings account were asked to estimate the interest rate their savings account gives them. 1.6% is the mean average of responses among those who have never overpaid on their mortgage.
4) Santander will pay one standard valuation up to a property value of £2.5 million. The borrower only needs to repay the standard legal fees/£250 cashback if they repay the mortgage within the first two years.