The Bank of England report shows homeowners are encouraged by the low interest rates to repay mortgages to lenders.
According to the Bank of England, mortgages are being paid in record time, resulting in a debt cut of £13bn just from the 1st quarter of 2015.
This is in stark contrast to before the credit crunch, where people would rather spend money on home improvement or luxury goods instead of paying off their mortgage.
There have been 28th quarters in a row where there was net housing equity injection, or an increase in the rate of debt repayments to a total to £313 billion since June 2008.
For remortgage buyers currently on your lenders standard variable rate, switching to a new preferential deal allows you to make overpayments to repay your mortgage early and reduce interest costs.
Even though the economy is growing, this would usually lead to more spending on luxury goods and services rather than mortgages.
Low interest rates encourage homeowners
Economists also believe that the extremely low interest rates have encouraged people to pay off their mortgage instead of attempting to profit off of the low interest rates in savings.
One possible reason for this is that before the economic crisis, people were more willing to take out loans, which reduced the equity that they had on their homes.
With lower interest rates home movers have the opportunity to make overpayments, reducing the loan to the lender and total cost of the mortgage.
In contrast after the crisis, people are far more conservative with borrowing, and banks are equally conservative with lending.
This means remortgage buyers are reducing their debt by making larger capital repayments when they select a new loan, such as fixed rate mortgage on a repayment basis.
Older remortgage buyers are often forced to repay their loan at a certain age and rather than downsizing, the equity release buyer can agree a lifetime mortgage.
In addition, lenders require first time buyers, home movers and buy-to-let landlords to have larger deposits to access the best rates encouraging greater equity investment.
Homeowners now more conservative
Howard Archer of IHS Insight said, there is a compelling case for many people to be looking to take advantage of very low mortgage interest rates to reduce their outstanding mortgage balances, if they can afford to do so.
This suggests a large number of people are trying to take advantage of low mortgage rates in order to pay off their debts and in turn improve their credit ratings and the like.
He also states that the very low savings interest rates would be off-putting for people with funds to spare, and that using their extra money in an attempt to pay off some of their mortgage would be a better alternative to the pittance that they would earn from a savings account at the moment.
However, the Bank of England has said that this isn’t a safe assumption, shown by the declining savings ratio that was published last week.
The Bank also says that the fall in equity withdrawal is more likely to be because of the falling house sales than people being more inclined to pay back.
What are your next steps?
Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the equity release mortgage calculator, mortgage cost calculators, and property value tracker chart.
For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to repay an interest only mortgage or even buy a more expensive home.
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