With many choosing to ditch alcohol this January, research from Santander has shown that putting some – or all – of the money usually spent on booze each month towards mortgage overpayments could save homeowners thousands over the life of their mortgage.
According to statistics from ONS, the average cost of a pint of lager is £4.811 – a figure which is only set to increase.
Calculations from Santander show that a homeowner putting the monthly price of 12 pints (£57) towards overpaying a 25-year mortgage of £200,000 at 4.5% over the life of the mortgage, would save £12,983 in interest and be mortgage-free two years and one month earlier than planned.
For heavier drinkers, the potential savings are even greater. Overpaying £144, the average price of thirty monthly pints, towards the same mortgage would save £28,373 in interest and reduce the term by four years and eight months.
Newspage asked brokers for their views on the research.
Mark Eaton, Chief Operating Officer at April Mortgages, says: “Overpaying your mortgage is a smart financial strategy that can significantly reduce your loan term and save you thousands in interest.
“However, just like with Dry January, the challenge is maintaining good habits beyond the initial effort. Many borrowers struggle to stick to regular overpayments when everyday expenses start to mount.
“If you’re serious about improving your financial health, it’s worth taking a step back and considering the best long-term strategy when it comes to your mortgage.
“The trend of remortgaging every two years may end up costing borrowers far more in the coming decades, especially as interest rate trends shift.
“Now could be the perfect time to explore longer-term fixed-rate products, with no overpayments limits or early repayment charges, offering borrowers a clear plan for the future – rather than relying on short-term solutions that may not serve you in the long run.”
Emma Jones, Managing Director at Whenthebanksaysno.co.uk, says: “Making overpayments can be a powerful way to reduce the interest you pay on your mortgage and its term.
“It’s good to see Santander relay this fact in a way that resonates with borrowers now, namely Dry January. Even small overpayments can make a massive difference.”
David Stirling, Independent Financial Advisor at Mint Mortgages & Protection, says: “This is a great idea for borrowers. Usually when an overpayment is made, the interest on the loan is recalculated from that day, meaning that there is a snowball effect from making regular overpayments, as these amounts are coming directly off the capital owed.
“In simple terms you are able to shave years off your mortgage term and save huge amounts of interest by overpaying.
“There are several online calculators that help show the impact of even a small overpayment and usually this can be set up as a standing order that the borrower is in control of. However, borrowers should also be reminded to try and keep an emergency fund of three to six months in savings before being advised to start making mortgage overpayments.”
Elliott Culley, Director at Switch Mortgage Finance, says: “Overpaying on your mortgage should be actively encouraged as it can make a real difference to how much interest a mortgage holder will pay and can significantly reduce the lifetime of the mortgage.
“However mortgage holders should first prioritise a pot of savings to plan for any unforeseen events as once you make an overpayment you can’t take the money back out of the mortgage as easily if you suddenly needed it.”
Riz Malik, Independent Financial Adviser at R3 Wealth, says: “Overpayments are a great way to cut the term of your mortgage and potentially save thousands in interest.
“A lot of people like this flexibility but seldom make the overpayments. Even if you overpaid your mortgage the equivalent of one extra monthly payment, it could shave years off your repayment date.”
Ben Perks, Managing Director at Orchard Financial Advisers, says: “There’s method in this madness, especially with the price of booze these days.
“Overpayments can reduce what you pay over your mortgage term significantly. The trick is to make overpayments regularly throughout your mortgage term, though. So while a few hundred quid each January will put a little dent in the mortgage, it won’t kill it off.”
Craig Fish, Director at Lodestone Mortgages & Protection, says: “Making overpayments on a mortgage is a sensible thing to do if it’s affordable.
“It’s surprising how little an overpayment it needs to be to shave several years off your mortgage term, and thousands in saved interest.
“Whilst most mortgages do allow overpayments, you should check before doing this just to make sure, otherwise penalties could apply.”
Ken James, Director at Contractor Mortgage Services, says: “Dry January could lead to more than just health benefits with the funds being used for overpayments on their mortgage.
“That being said, for most it would just be a one off as Dry January will end and then it’s back to the usual habits.”
Darryl Dhoffer, Founder at The Mortgage Geezer, says: “Santander, the beacon of financial enlightenment, has finally cracked the code to financial freedom: abstinence. Who knew that forgoing the simple pleasures of a pint or two could unlock such staggering mortgage savings?
“I’m particularly intrigued by their “research” – did they perhaps conduct this groundbreaking study in a monastery? Or perhaps in a support group for recovering alcoholics?
“Because let’s be honest, suggesting that anyone can simply “ditch” alcohol is about as realistic as suggesting they sprout wings and fly to the moon. And the sheer audacity of linking the price of a pint of lager to the crushing weight of a 25-year mortgage?
“It’s almost comical. As if the average homeowner’s biggest financial burden is a fleeting moment of liquid enjoyment. Perhaps Santander could also offer a “Ditch the Dining Out” plan, or a “Ditch the Netflix” program.”
