New figures from the Bank of England show that homeowners paid off a record £7 billion of mortgage debt in the last quarter of 2010. Overall, UK mortgage borrowers paid off more of their mortgage borrowings last year (£24.6 billion) than in any other year since records began.
This latest record quarter continues a trend of increasing equity in property over the last two to three years as homeowners pay off more of their mortgages and put down larger deposits when buying new homes.
Before 2008 we saw a decade of growing equity withdrawal as people took out more and more finance secured against their homes – supported by a strong housing market, rising house prices and a mortgage market much more willing to lend than it is now.
That trend has been reversed in recent years and we’ve now had 11 consecutive quarters of net repayment of mortgage debt.
Factors such as low interest rates, falling house prices and strict mortgage lending conditions have caused a substantial drop in the number of people remortgaging and releasing equity. Many borrowers have also seen their monthly repayments slashed due to low mortgage rates and have taken the opportunity to reduce their mortgage debt with the spare cash.
Meanwhile, homebuyers have had to find bigger deposits when buying a new home – according to the Council of Mortgage Lenders, First Time Buyers put down an average deposit of 10% at the beginning of 2007. This increased to 23% at the end of 2010.
Reducing your mortgage debt by overpaying can benefit you in a number of ways. First of all, it can save you thousands of pounds in interest of the term of your mortgage and allow you to pay your mortgage off earlier.
By increasing the amount of equity in your home (and thereby reducing your Loan To Value), overpaying on your mortgage can also give you access to better mortgage deals when it comes to remortgaging or buying a new home and this can result in even more savings.
Try our mortgage overpayment calculator to see how much you could save by overpaying.