Major bank is set to increase its overpayment option to 20%
NatWest have announced that, from early March, it will allow customers, without incurring early repayment charges, to overpay twice as much on their homes.
With many customers coming to the end of their fixed rate deals this year, the option to overpay by up to 20% would allow homeowners to reduce their remaining loan, which in turn would lower the interest on their new mortgage.
David Hollingworth (pictured), associate director of communications at L&C Mortgages, said this move by NatWest will allow homeowners that have the ability to make a more substantial overpayment, the chance to reduce their debt more substantially. However, he believes that due to current market conditions, few customers will be able to exploit the opportunity.
Overpayments – flexibility
Hollingworth said the move was an important change in policy by one of the big UK lenders, and added that it was a positive attempt to give as much flexibility to borrowers as possible.
“It has become commonplace for lenders to build a good degree of flexibility into their mortgage products; that typically equates to giving enough flex for borrowers to overpay by up to 10% per annum without incurring an early repayment charge,” he said.
Hollingworth added that this has become almost standard in the market and is now an expected feature of any mortgage deal.
However, he said that some lenders, including Metro Bank and Atom Bank, have led the way by stepping beyond the 10% margin, and have long offered overpayments of up to 20% per annum.
Overpayments – rise in popularity
Hollingworth said that overpayments rose in popularity during and following the pandemic, with many borrowers choosing to reduce their overall debt level during this period.
He said this was because many homeowners built up additional savings due to the numerous lockdowns impacting their spending habits.
“Santander reported a year ago that it had seen borrowers making overpayments that were 50% more than the year before,” Hollingworth added.
However, he said the backdrop had changed substantially since then, with interest rates having shot up, as well as cost-of-living increases biting hard.
Overpayments – little impact
With a large number of people still enduring financial troubles, Hollingworth does not expect many customers to be able to take up this opportunity of increasing overpayments.
“Despite NatWest being set to increase the overpayment level for homeowners, the number of borrowers that will be in the position to overpay on their mortgages has declined drastically due to current market conditions,” Hollingworth said.
He said it was common for customers to state that they would like the ability to overpay, but added that will not always tally up with the number of borrowers who actually go on to make overpayments.
In that regard, Hollingworth said it would be easy to suggest that doubling the overpayment facility now will have little significance for many, who may barely scratch the surface of their current allowance.
However, for those that can take advantage, whether through hard saving during lockdown or an inheritance, he said it helps give more choice and flexibility in how they manage their mortgage.
“It may not help the majority of embattled homeowners, but allowing those that can to reduce their debt, at a time when rates have rocketed, may give an extra element of help in keeping outgoings down,” Hollingworth said.
He believes that cannot be seen as a bad thing, and could ultimately help push the typical annual overpayment allowance beyond today’s 10% standard across the rest of the market.
What is your perspective on NatWest announcing a change in policy to allow customers to overpay up to 20%? Let us know in the comment section below.
