Lloyds Allow Mortgage Overpayment
One of the beleaguered British banks no doubt anxious to spread some good news is Lloyds and in their role as the leading UK mortgage lender, they have launched a scheme to overpay their mortgages by up to 20% with no financial penalty.
This applies to holders of standard variable rate mortgages and according to Lloyds, there has never been a better time for most people to repay more on their mortgage than planned. This is of course because of the current historic low mortgage rates.
The new scheme will last until 31 March, 2011, and say Lloyds, as many customers as possible should take advantage. This is because of the low rate environment, which means that affordability has improved significantly. Lloyds make the point that mortgage payments (capital and interest) accounted for 32% of average post earnings in 2009 quarter four. But in quarter four 2007, they accounted for almost half, 47%. And when you do the maths, this means that the amount of money customers have remaining after tax has increased by 15 percentage points since quarter four 2007 across a range of mortgages.
And Lloyds have backed up their opinions with independent research, showing some 25% of mortgage consumers questioned on the matter in a recent survey, were already choosing to pay more off their mortgage. And of those choosing to do so, around half said that they were overpaying their mortgage to reduce its length. Furthermore, under a quarter said they were overpaying to pay less interest.
Stephen Noakes, the commercial director of mortgages for the Lloyds Banking Group said:
“With mortgage rates at an historic low, there has never been a better time for the majority of people to overpay their mortgage. The average mortgage repayment has dropped by around £188 per month. And those on tracker mortgages have done even better – on average they are just over £400 a month better off. Customers have a choice to make to gain maximum advantage from the extra cash in their pocket.
“We are seeing our customers behaving very rationally. A number of whom are not necessarily banking the reduction in their interest payments but are actually using that to pay down their interest. This is a very positive move. Not only can it help customers shave interest off their mortgage, it also means less of a payment shock should interest rates begin to move back up.”
Lloyds also provided some figures to support their argument and their new scheme. They said that on a £100,000 mortgage with an SVR of 3.5%, overpaying by just £50 per month will reduce the term of a mortgage by three years and six months. It will also save a customer £14,576.04 (£7,557.24 in interest and £7,018.80 in mortgage payments).
So if you’ve got some spare cash, you know what to do.
Guest Article by Neil Camp
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My name is Alan Potts and I'm the Editor of the BUYability web site and Managing Director of BUYability Limited. You can connect with me or keep up to date with new posts on this blog via the following social media sites: 
