Record number of households turning to mortgage overpayments to take the sting out of rising interest rates
- First time overpayments have topped £6 billion since 1999
- 1.8 million are due to come to the end of their fixed-rate mortgage this year
Households overpaid nearly £7 billion on their mortgages at the end of last year in a race against soaring interest rates, Money Mail can reveal.
Homeowners spent an unprecedented £23.3 billion overall on mortgage over-payments in 2022, paying off a record £6.7 billion in the past three months, according to analysis of government data by the Equity Release Council shared with Money Mail.
This is the first time quarterly over-payments topped £6 billion since records began in 1999.
Typically, homeowners can overpay their mortgage by up to 10 per cent without incurring fees, however some banks have increased this in recent weeks. Last month NatWest raised the allowance to 20 per cent.
Race against the hikes: Homeowners spent £23.3bn overall on mortgage overpayments in 2022, paying off a record £6.7bn in the last three months
The wave of overpayments was made in response to rising mortgage rates in October and November, which sent the cost of borrowing soaring for millions.
In October, the average two-year fix shot up to a 14-year high of 6.65 per cent, with five-year deals reaching 6.51 per cent in the same month.
And although rates have subsequently fallen, they are still much higher than pre-pandemic levels.
Around 1.8 million homeowners are due to come to the end of their fixed-rate mortgage this year, according to UK Finance. This means that they are likely to face a new deal at a much higher cost.
Those who have overpaid on their mortgages have done so in the hope of shielding themselves from the full force of high interest rates.
Jamie Lennox, mortgage broker at Dimora Mortgages, says: ‘Some homeowners will have built up substantial savings when mortgage rates were lower. In the wake of the mini-budget, many households will now be thinking this money would be best spent in overpaying their mortgages.
‘Others will be cutting back on luxuries in order to put that money towards their home loan.’
In total, regular mortgage payments passed £15 billion in the final three months of last year.
And despite the increase in overpayments, total mortgage debt reached a record £1.6 trillion in December.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.
This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value
What if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal.
Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to higher mortgage rates limiting people’s borrowing ability.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.
You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check the best fixed rate mortgages you could apply for