The UK’s historically low, current interest rates has led to over 2.3 million borrowers overpaying on their mortgages according to new figures produced by the Council of Mortgage Lenders. (CML) The organisation claims that between April 2005 and March 2012 a record number of borrowers have paid more than the required amount on their mortgage contract and have made overpayments. The level of overpayments indicates that one in three or 34% of borrowers have taken advantage of the low current interest rate climate to maintain the level of previous payments, now contractually reduced, given the lowering of Bank rates.
The current Bank of England's base rate remains at the lowest in its history and has remained at 0.5% for nearly 3 years. It was reduced to the current interest rate in March 2009. It is clear that UK borrowers are building a greater equity stake in their properties and this will serve to reduce the impact of any rate increases when they arrive at some point inevitably in the future.
The fact that customers are paying off their mortgages also increases the available options when re-mortgaging, given the ability of consumers to benefit from the lower interest rates being offered to those with the greatest levels of equity.
Recent research by e.serv, the valuers has confirmed that mortgage lenders do favour affluent borrowers with equity as opposed to first-time buyers. This can be confirmed by the fact that there were 53,259 mortgages completed in November but only 22% were approved for high loan-to-value first-time buyers. Richard Sexton, a director at e.surv, said: "The slight improvement in overall lending glosses over the on-going struggles of first-time buyers. High LTV lending is a third lower than it was this time last year, which suggests things remain challenging for new buyers. Mindful of their risk profile and capital adequacy requirements, lenders appear to be focusing increased lending on relatively wealthy borrowers."
If the trend continues for those overpaying on mortgages continues next year, the CML have predicted that the volume of outright homeowners in the UK could outstrip the actual level of mortgage borrowers and this could occur as early as 2014. This may then give greater impetus to lenders to increase the range of options for those with less equity and higher loans to value.
