The madness of Britain’s borrowers

by John Fitzsimons on 23 September 2009  |  2 comments
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New research has found that of those enjoying low tracker rates at the moment, more than half are opting not to overpay on their mortgage.

The undoubted winners of the recession have been those borrowers on tracker mortgages. While those on fixed rates have looked on with envy in their eyes, borrowers who took out very low tracker mortgages are laughing.

These homeowners have seen their monthly repayments absolutely plummet, in some cases by many hundreds of pounds. Good luck to them.

However, it turns out that most of them have been a bit daft with that windfall.

A sensible thing to do would be to keep your repayments at the same level they were before, thereby overpaying. That way you build up the equity you own in the property, and therefore pay off the mortgage earlier.

It also means that should you want to remortgage, you'll be able to get a smaller loan, and likely at a much better rate as a result.

Now, I know being sensible about money is a bit dull, but this seems like a no-brainer to me. However, the vast majority of these lucky people are doing the exact opposite.

New research from Unbiased.co.uk has found that 53% of borrowers on tracker deals aren't overpaying on their mortgage. Indeed, just one in five have kept their repayments at the same levels they were before the round of rate cuts earlier this year.

A quarter of borrowers choosing not to overpay have been relatively sensible, devoting their extra cash each month towards other debts. That's fair enough. I can also understand the logic of the 27% who are using the cash to bolster their savings accounts or current accounts, though I still think they're doing the wrong thing.

But the 19% who are using that extra money to treat themselves each month need their heads checked. This is an incredible opportunity that is unlikely to come around again, to get yourself free of your mortgage early, and cheaply, and they would rather put that money towards buying a few DVDs, or a new mobile phone?

This is the exact insane attitude towards debt that got us all into this mess! Frankly, I reckon they must be barmy.