Editor's Pick

Households overpay £5bn of mortgage debt amid ‘polarising’ pandemic

Christina Hoghton
Written By:
Christina Hoghton

While a fifth of households have had to use their savings for day to day life, over a quarter have managed to save more during the pandemic

Homeowners used lockdown savings to overpay more than £5bn of mortgage debt between October and December, the highest value of lump sum repayments since 2007, according to analysis by the Equity Release Council (ERC).

However, 1.6 million payment holidays were granted last year, driving down the year-on-year value of contractual mortgage payments.

While some of these will be for those families hardest hit by the pandemic there is belief that many were taken by those borrowers taking precautions and were ultimately largely unnecessary.

The council said the figures painted a “polarised” picture of how coronavirus had affected the nation.

A survey from the Bank of England carried out in November highlighted the stark difference between families’ financial health when it found that 28 per cent of households have accrued extra savings during the pandemic while 20 per cent have depleted their savings.

Paying down debt

Quarter four overpayments of £5.1bn were 18 per cent higher than the same period last year and 22 per cent up on Q3, surpassing the previous high of £4.9bn seen in the third quarter of 2007.

The council said it is likely the rise in overpayments was driven by those households who built up extra cash reserves while being forced to stay at home last year. Between March and December retail savings deposits increased by £127bn.

In total, households repaid a record £17.6bn of mortgage debt, which includes repayments that homeowners are contractually obliged to pay, equivalent to £192m a day.

Pandemic squeeze

The value of regular repayments in Q4 fell by two per cent year-on-year to £12.6bn and was three per cent lower than the £13bn of repayments made in the first three months of 2020 before the full force of the pandemic hit the UK.

The UK’s total mortgage debt also rose to a new high of almost £1.5trn by the end of 2020. This figure has increased by £44bn in 2020 and is three times higher than the £494bn of mortgage debt accrued in 2000.

Jim Boyd, chief executive of the Equity Release Council, said: “These figures suggest mortgage holders across the nation have been polarised by the experience of the pandemic.”

Boyd said the “unexpected gift of extra savings” had helped some households to pay down mortgage debt but some families who had been hard hit by health crisis had been forced to rely on the government’s furlough support and pause their loan payments, increasing their overall mortgage debt.