Mortgage overpayments take the sting out of rising interest rates

Households overpaid their mortgages by nearly £7bn late last year in a race against rising interest rates, Money Mail can reveal.

Homeowners spent an unprecedented £23.3bn in total on mortgage overpayments in 2022, paying off a record £6.7bn in the last three months, according to analysis of government data by the Equity Release Council, shared with Money Mail .

This is the first time since registration began in 1999 that overpayments have exceeded £6 billion.

Typically, homeowners can overpay their mortgage by up to 10 percent at no extra cost, but some banks have increased this in recent weeks. Last month, NatWest raised the surcharge to 20 percent.

The surge in overpayments was in response to rising mortgage rates in October and November, which drove up borrowing costs by millions.

In October, the two-year average fix skyrocketed to a 14-year high of 6.65 percent, while five-year deals hit 6.51 percent in the same month.

And while rates have subsequently fallen, they are still much higher than they were before the pandemic.

Around 1.8 million homeowners will reach the end of their fixed-rate mortgage this year, according to UK Finance. This means that they will likely have to take on a new deal at a much higher cost.

Those who have overpaid on their mortgage have done so in hopes of protecting themselves from the full force of high interest rates.

Jamie Lennox, mortgage broker at Dimora Mortgages, says: ‘Some homeowners will have saved heavily when mortgage rates were lower. In the wake of the mini-budget, many households will think that this money is best spent on overpaying their mortgage.

“Others will cut back on luxuries to put that money into their home loan.”

Overall, regular mortgage payments exceeded £15bn in the last three months of last year.

And despite the rise in overpayments, total mortgage debt reached a record £1.6 trillion in December.

a.cooke@dailymail.co.uk