The Co-op sees rise in mortgage overpayments
With the Bank of England base rate at an historic low, the figures also show that it is those customers on variable rate products that are the most likely ‘overpayers’ with these customers three times more likely to be making overpayments than those on fixed rate mortgages*.
Currently most customers within their initial mortgage deal period are allowed to make overpayments of up to 10% of their mortgage balance per year, without any penalties, and customers on lifetime trackers and standard variable rates have no restrictions on overpayments.
However as a result of this increasing trend, The Co-operative Bank is now launching a pilot scheme, offering those customers who have already made significant overpayments in 2009, the option to make additional capital repayments of up to 50% of their entire mortgage without penalty.
These capital repayments will sit outside the normal overpayment scheme, and will offer a permanent reduction in the capital outstanding, immediately reducing the outstanding balance of the mortgage.
This pilot scheme will offer customers a number of benefits, including the ability to obtain lower rate products available for lower loan to value mortgages, as well as reductions in monthly payments and/or the term of the mortgage.
Terry Jordan, head of mortgages at The Co-operative Bank, commented, “With interest rates continuing to remain at the current low level, we have been following developments in this area closely. Our data shows a real trend in the number of customers electing to make overpayments and as a result we have decided to offer those customers that are already significantly overpaying the chance to take advantage of the current low rate environment by making additional repayments without penalty, in the form of capital repayments.
“Also with many economists predicting that the interest rate environment will remain low into 2010, we will be monitoring this pilot scheme in detail, with a view to rolling out to across more customers next year if successful.”