A Wasted Opportunity?
We reported yesterday on comments made by a senior member of the Bank of England’s Monetary Policy Committee (MPC) regarding the recent drops in the base rate of interest on homeowner loans and also on the likelihood that these would increase once the current economic down turn had passed, possibly as quickly as they have fallen.
The huge savings which many people are making on their homeowner loan repayments, particularly those on a tracker loan product, provides an ideal opportunity for them to reduce their outstanding loan balance by making regular monthly overpayments, with the potential to knock thousands of pounds off the balance of their loan and also reduce the remaining term by several years.
However, new research from Unbiased.co.uk has found that more than half of those borrowers with a tracker homeowner loan are not actually taking advantage of the benefit of such low rates in order to reduce their loan balance. The survey found that only 22 per cent of tracker borrowers had actually maintained their repayment level at the same amount as it was prior to the recent rate cuts.
Very sensibly, 38 per cent of borrowers claimed that they had used the savings to pay off outstanding balances on more expensive forms of debt, such as personal loans and credit cards. However, almost a third of those borrowers who have made savings are using the extra money to pay for normal every day expenses, or even to provide luxuries and treats.
A spokesman for Unbiased.co.uk said “Tracker and standard variable rate mortgage borrowers have watched interest rates plunge to record lows in recent months, presenting an ideal opportunity to pay down more quickly the amount of outstanding mortgage. Such action would enable millions of borrowers to take years off their mortgage repayment term, or enjoy a greater level of repayment comfort down the line, should the recession begin to bite harder.
Our initial research suggests most tracker borrowers are not taking this action, however we’re encouraged by the large number who are using their repayment savings to erode their more costly credit card and personal loan debts.”
