Twice as many mortgage holders save rather than pay down debt
Despite recent research showing that overpaying on a mortgage offers better longer term rewards than saving, twice as many mortgage holders save regularly rather than pay down their debt according to research from online bank first direct.
A survey of 1022 UK mortgage holders found that 42% are saving regularly - double the proportion that regularly overpay on their mortgage (21%).
One reason for this could be a widespread lack of awareness among mortgage holders on the current details of their loan. Almost a third (31%) don't know the interest rate on their mortgage, 43% don't know the total cost of their mortgage including interest, and a quarter do not know whether or not they are able to overpay on their mortgage.
The top things mortgage holders are unaware of
The total cost of their mortgage including interest (43%)
The over payment limit on their mortgage (42%)
The interest rate on their mortgage (31%)
Whether or not they are allowed to overpay on their mortgage (25%)
The amount outstanding on their mortgage (15%)
Another possible explanation is that people value the flexibility of a savings account and are reluctant to pay down mortgage debt in uncertain times as they may need access to their money in unforeseen circumstances. While in reality, twice as many mortgage holders pay into a savings account as overpay their borrowing, when asked hypothetically how they would use any spare income, the most popular answer was overpaying their mortgage (48%), outstripping paying into savings (42%) and paying off credit card debt (33%).
Offsetting - The Best of Both Worlds
Research by the direct bank has found that by offsetting their savings against their mortgage debt, the average mortgage holder could reduce their mortgage payments by £28.25 per month while retaining access to their savings.
Richard Tolchard, Senior Mortgage Manager at first direct, commented: "People continue to try to put some money to one side and mortgage holders are no different in also wanting to pay down their loan. However, as this study shows, more often than not they choose to feed extra money into a savings account. This is where an offset mortgage can offer the best of both worlds, acting as a savings account and a way to reduce their net borrowing, as the customer keeps the flexibility to access their savings if they need them."
Men More Aware of Mortgages
Men are more aware of every aspect of their mortgage except the amount of overpayment allowed on their mortgage for which they are equal. The biggest knowledge gap between the genders is on the total cost of the mortgage which 63% of men said they know, compared with just 52% of women.
Young People Developing Good Financial Habits
Those in the 25-34 age bracket are the most likely to see the value of saving regularly as 86% of them either already do this or are considering it, compared with 62% of the over 55s. The younger age group is also the most likely to occasionally pay into savings (83%) and the older age group the least (66%).
Suggesting again that the 25-34 age group is conscious of money issues, they are the second most likely to overpay on their mortgage (22% compared with 24% of the 45-54 age group). They are also the most likely to be considering overpaying (51%) compared with 35% of the 35-44s, 33% of the 45-54s and 24% of the 55+ age group.