A survey of 1,022 UK mortgage holders found that 42% are saving regularly, double the proportion that regularly overpay on their mortgage at 21%.
One reason for this could be a widespread lack of awareness among mortgage holders on the current details of their loan, says the research.
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.
Some 43% are unaware of the total cost of their mortgage including interest, 42% don’t know the over payment limit on their mortgage, 31% don’t know the interest rate on their mortgage, 25% don’t know whether or not they are allowed to overpay on their mortgage and 15% don’t know the amount outstanding on their mortgage.
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 at 48%, outstripping paying into savings at 42% and paying off credit card debt at33%.
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.
‘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,’ said Richard Tolchard, senior mortgage manager at first direct.
‘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,’ he explained.
The research also found that 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.
Those in the 25 to 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 to 34 age group is conscious of money issues, they are the second most likely to overpay on their mortgage, at 22% compared with 24% of the 45 to 54 age group. They are also the most likely to be considering overpaying at over half, 51%, compared with 35% of the 35 to 44s, 33% of the 45 to 54s and 24% of the 55 plus age group.
