Several major high street lenders including Natwest, HSBC, and TSB have cut mortgage rates, meaning homeowners coming to the end of their fix term could lock in around 4 per cent. This is a drastic saving from earlier this year; in January 2024, the average five-year fixed rate was 5.55 per cent while the average two-year fixed-rate deal was at 5.93 per cent.
It comes as the Bank of England's Monetary Policy Committee (MPC) is slated to announce its latest interest rate decision tomorrow. Reports suggest the central bank is expected to hold rates at 4.75 per cent despite pushes for a cut. With all of this in mind, are you better off overpaying on your mortgage, or stuffing your cash into a savings account?.
First of all, you need to check how much you can actually overpay - otherwise you'll risk paying thousands in penalty fees. If you're on a standard variable rate (SVR) mortgage, it is likely you'll be able to overpay as much as you want without any issue (best to double check if you're on a tracker mortgage). However, staying on an SVR rate isn't usually the cheapest way to pay back your mortgage, so you might be better off changing to a Discounted Variable Rate or Fixed Rate Mortgage.
If you're on a fixed-term deal, it's likely you'll be allowed to pay 10 per cent of your mortgage balance as an overpayment every year - without being stung by penalties. These tend to be around 1-5 per cent of the amount you overpaid, so really is worth avoiding.
