Some 33 percent of all home loans taken out in the UK since 2005 were overpaid, with mortgage holders forking out £31 billion (S$61 billion) in extra payments, according to the Council of Mortgage Lenders (CML).
Thanks to nearly four years of historically low interest rates, many borrowers were able to significantly increase the equity of their homes. As borrowers look to pay down their debt more quickly, many are expected to become mortgage-free sooner than expected. The CML also revealed that 50 percent of mortgage holders overpaying did so by £5,000 (S$9,844) or less while 10 percent overpaid by more than £20,000 (S$39,376).
Between April 2005 and March 2012, about 2.3 million borrowers overpaid the contractual amount on their loans.
This trend was supported by the low interest environment and falling returns from savings accounts. As a result, many opted to use the extra cash to pay down their loans.
“Rates look set to remain at their current low level for some time yet, meaning there is further potential for mortgage debt to be repaid ahead of schedule,” said the CML.
“With household budgets increasingly stretched by a combination of inflation, sluggish wage growth and welfare cuts, more of the ‘windfall’ of lower payments may be drawn upon to meet other household commitments. But overpayments, where they are made, will ease the pressures on household finances.”
Romesh Navaratnarajah, Senior Editor of PropertyGuru, wrote this story. To contact him about this or other stories email romesh@propertyguru.com.sg
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