September 2023

Should I Overpay my Mortgage?

Whilst many people may be struggling to keep up payments on their mortgages in the wake of steep interest rate rises, there are a significant number of homeowners who may be wondering whether it is worthwhile paying more than the minimum statutory repayments each month, with the aim of helping to save money in the long run.

We look at some of the pros and cons of making a mortgage overpayment each month to see whether the average homeowner could be better or worse off by making an additional payment each month.

Here’s a simplified example to show how it could work –

If someone had a £150,000 mortgage, with a term of 20 years at a rate of 5%, they’d be required to pay back a total of £237,584 in total when making the contracted standard repayment each month. However, if they made an extra monthly overpayment of £100 on top of the existing payment, the cost of repaying the mortgage would fall to £223,327 – saving them approximately £14,300 and enabling the homeowner to pay back the mortgage nearly 3 years quicker.

Naturally there are more complexities in real life, and fluctuating rates each time you remortgage, but generally it goes to show that in many cases it may be possible to pay off a mortgage faster and reduce the amount of interest paid by making relatively small extra overpayments each month.

Making a mortgage overpayment

We’re all different, with different circumstances, so it’s wise to seek professional advice and guidance before deciding to arrange a mortgage overpayment. Your existing mortgage lender is likely to have some advice on their website, but we’d also advise that you talk to us too. We’ll be able to look at your precise circumstances and help give an illustration of what you can achieve by making an overpayment that suits your own lifestyle needs.

How much can you overpay?

The amount can be whatever you can manage, whether a small amount, right up to a general maximum of around 10% of the remaining balance each year1. Overpayments above this maximum amount can be liable for early repayment charges from your lender, so it’s wise to consider this before setting a precise amount. We can help you find the optimum amount that you’d like to repay each month by working with you – simply contact us to arrange an appointment accordingly.  

When deciding how much to overpay, it’s important to consider the level of disposable income that you need to enjoy your current lifestyle, and especially any forthcoming expenditures – for example, having money set aside for any family holidays, activities, vehicle maintenance bills or household issues, for example.

What are the benefits of overpaying?

Aside from reducing your mortgage debt more quickly, and potentially saving money on the amount of interest owed, there are additional benefits that can be seen from overpaying your mortgage.

  • If your mortgage rate is higher than your savings rate, you may find that it is more beneficial to pay back the mortgage and reduce the interest owed, compared to the amount of interest that your money may make while it is sitting in a bank account.
  • If you pay more of your mortgage off sooner, this can sometimes put you in a stronger position for a cheaper mortgage deal when your existing one is due for renewal. This is because you will have more equity in your property, and your loan-to-value (LTV) is decreased, which often opens up more choices when it comes to available rates for mortgages.

What are the drawbacks of overpaying?

If you have other debts which have higher interest rates, such as credit cards or additional loans, then it may be more beneficial to pay these off first. It’s worth considering any other costs you are likely to incur, and factoring these into whether you can afford to make a mortgage overpayment each month.

With interest rates rising, it’s also worthwhile doing your homework to see what your money could earn you if it’s saved in a high-interest account – there are chances that in some cases it may be more beneficial to save your money rather than pay additional amounts on your mortgage.

It’s important to think carefully about the amounts of money that you may wish to utilise on either overpaying or saving before going further, before looking at the various options available to you. It could be worth seeking financial advice for this element before making a decision.

As mortgage advisers, we are able to assist you in the area of what your mortgage circumstances may look like if you were to consider an overpayment, the impact that this could make on your mortgage and assistance in how you go about facilitating this.

Sources

  1. MoneySavingExpert (2023) Ultimate Mortgage Calculator. Available at: https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/ (Accessed 25 Sep 2023)

Your home may be repossessed if you do not keep up repayments on your mortgage.

All the information in this article is correct as of the publish date 28th September 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

Energy Price Cap Drops to £1,923: Why You Should Submit a Meter Reading

This weekend, millions of households across the United Kingdom are set to enjoy a welcome drop in energy costs as the Ofgem price cap falls to £1,923 per year for the average home, a decrease of £151.However, to ensure accurate billing, it is crucial to provide your energy provider with meter readings before the price cap adjustment takes effect on October 1st.

What is the Ofgem Price Cap?

The Ofgem price cap sets limits on how much you can be charged for your gas and electricity usage if you are on a variable-rate tariff and pay by direct debit. Almost all UK households currently benefit from this cap, which is reviewed four times a year. The next decision on the price cap takes place during November, and is scheduled to take effect from January 20241.

The price cap currently stands at an average of £2,074, falling to £1,923 on 1st October 20231. In this article, we’ll explore the implications of these price cap changes on your energy bills and why submitting meter readings is essential.

How the Price Cap Affects Your Energy Bills

The impact of the price cap on your energy bills depends on various factors, including your tariff, meter type, and energy consumption.

This price reduction is attributed to the declining wholesale energy prices, which energy providers like British Gas purchase and subsequently offer to consumers1. However, the exact amount you pay will vary depending on your energy consumption. The price cap only sets a limit on the maximum charge for the units of gas or electricity you use. Therefore, your actual bill will depend on your energy usage, which tends to increase as winter approaches and heating systems are used more frequently.

Meter Type and Its Impact

Meter type also plays a role in how the price cap affects your energy bills. For those using pre-payment meters, according to the Ofgem report, the price cap will decrease from an average of £2,077 to £1,949 in October. Customers with credit meters, on the other hand, currently pay an average of £2,211, which will drop to £2,052 from October 1st.

Standing Charges

The Ofgem price cap also regulates standing charges, which can vary based on your location. For electricity, the average standing charge remains at 53p per day and will not change on October 1st. However, the typical standing charge for gas will increase slightly by 1p, reaching 30p1.

Special Considerations

Customers with Economy 7 meters will see a decrease in their price cap, from a typical rate of £1,400 for electricity usage to £1,298 in October2. Additionally, households that consume more than £3,000 of energy per year will have their bills capped through the Government’s Energy Price Guarantee. This government scheme, initially launched at £2,500 in October 2022, was raised to £3,000 in July 20233.

Submit a Meter Reading

Given the impending price cap changes on October 1st, it is vital to provide your energy provider with a meter reading. This ensures that your billing accurately reflects your gas and electricity usage for the upcoming billing period, which runs from October 1st to December 31st. Without an up-to-date meter reading, energy companies may rely on assumptions to calculate your bill, potentially leading to inaccuracies. It’s advisable to submit meter readings before price cap increases, but even when the price cap falls, as it will on October 1st, providing accurate readings ensures certainty regarding your energy bill and prevents unexpected charges.

The Future of Energy Bills

As for the future of energy bills, Ofgem does not make predictions about price cap changes. However, experts in the field, such as analysts from Cornwall Insight, typically offer accurate energy bill price forecasts. Cornwall Insight anticipates that from January 1st, the typical household will pay around £2,032, which will decrease to £1,964 in April, further drop to £1,917 in July, and then rise again to £1,974 by the following October4.

The drop in the Ofgem price cap to £1,923 is excellent news for households, offering some relief from high energy bills. To ensure you benefit from this reduction and avoid billing discrepancies, submitting a meter reading is essential before the cap adjustment on October 1st. Keep in mind that your actual bill depends on various factors, including your meter type and energy usage. Stay informed about future price cap changes by following expert predictions, and remember that accurate meter readings provide transparency and certainty in managing your energy expenses.

Sources

  1. Ofgem (2023) Energy prices to fall again this winter. Available at: https://www.ofgem.gov.uk/publications/energy-prices-fall-again-winter (Accessed 26 Sep 2023)

All the information in this article is correct as of the publish date 28th September 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

Students Could Benefit From Their Parents Insurance

As students navigate the steep costs of living and studying in the UK, they can often find themselves in need of expensive essentials like laptops, smartphones, and textbooks. The loss or theft of these items can be financially devastating for students. Fortunately, there’s a way for parents to provide an added layer of protection for their children’s possessions while they pursue higher education, potentially saving them money on additional insurance policies.

One option is to extend their existing home insurance policy to cover their child’s belongings while they are away at university. This approach eliminates the need for students to purchase separate insurance, offering a practical and cost-effective solution1.

Whilst parents may often wish to financially support their children during their university years, whether it’s contributions towards rent, food or textbooks for example, parents can consider how to safeguard their child’s possessions and financial stability through insurance cover, to protect the items that matter the most.

Income protection also plays a crucial role in this regard. It can ensure that parents can continue to financially support their child’s education even if they face unforeseen challenges, such as a period of inability to work due to illness or disability.

By securing income protection, parents can rest assured that they have a financial safety net in place to provide for their child’s needs. This becomes particularly important when considering that students may receive less than the full maintenance loan due to their parents’ income levels.

It’s worth looking at your own home insurance provider to see if they offer cover options for students, and if you are interested in talking further on income protection options to ensure full peace of mind, please do not hesitate to book an appointment with us to let us look at your exact circumstances and seek to find a cover option that suits you.

Sources

  1. MoneySuperMarket (2023) Student home insurance. Available at: https://www.moneysupermarket.com/home-insurance/students/ (Accessed 26 Sep 2023)

All the information in this article is correct as of the publish date 28th September 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

Boilers and Energy Ratings: What the latest Government Changes Mean for Your Home

Prime Minister Rishi Sunak recently made an announcement1 on a number of policies that affect the UK’s path to ‘Net Zero’2 by 2050. Whilst the headline news was primarily the pushback of the ban on the sale of new pure-petrol & diesel cars to 2035, there were some additional announcements that can affect our homes too.

Boilers

Recent years have seen Government policy that traditional fossil fuel boilers were to be phased out, with a requirement for a transition to heat pumps from 2026, meaning that should a gas or oil boiler be due for replacement, then an alternative would need to be sourced.

The 2026 deadline has now been pushed back to 2035 as part of the Government’s latest announcement, allowing additional time for UK homeowners to install gas or oil boilers into their homes. The Government also announced an increase in grants available to help homeowners transition to heatpumps, from £5,000 to £7,000.1

The decision has received mixed reactions, certainly those most affected by the change to a heat pump could be those in more rural areas, where it’s reported that some homeowners may face costs of up to £40,000 to replace their existing fossil fuel boilers for example.3

Generally the transition to a newer heating system can bring certain savings for the homeowner, and the change in the deadline to 2035 gives extra time for UK homeowners to future-proof and upgrade their property to a modern gas or oil boiler before they too are phased out.

Recent findings show that modern boilers are up to 92% more energy efficient, compared to between 65%-85% efficiency in older boilers, so an upgrade could possibly save you money on heating bills and help to reduce your own carbon footprint. The installation fees of a new boiler, on average, cost between £1,500 to £2,500, which is cheaper than installing low-carbon heating system alternatives.4

Energy Efficiency Ratings for Rental Property

Particularly of interest to landlords was the Government announcement on Energy Performance Certificates (EPCs) – overruling a previous decision to require landlords to have an EPC rating of A-C in order to rent out their property.

The EPC ratings are similar to what you’d expect to find on a domestic appliance for example, but in this case, apply to rental properties. The Government had set out that a property must have an A-C rating for energy efficiency by the year 2025 if renting out to a new tenant, and that landlords must have upgraded existing properties to A-C rating by 2028 for any properties with existing tenants already in place.1

This entire policy has now been scrapped under the latest Government plans, leading to mixed reactions from across the marketplace. Whilst some have accused the Government of disregarding environmental concerns, others have celebrated the stimulus this may bring to the rental market and potentially the cost of rent not being increased to cover expensive energy efficiency improvements required to meet the EPC criteria.5

The uncertainty generated by the EPC rating scheme has been one factor behind the reduction in the volume of rental properties available in the UK, as landlords struggled to make key investment decisions on their portfolio to future-proof it, and instead may have sought to sell property instead, especially as interest rates have risen extensively in recent times and the UK privately rented residential sector has lost over 400,000 homes since 2016.[5][6]

Ultimately, many landlords may have already begun their planned improvements to bring their rental properties up to the A-C energy standards to meet the criteria, and have already invested significant sums to do so and therefore this announcement comes too late, however they may reap the benefit of reduced energy costs as a result of the greater energy efficiency.

It’s unknown whether a future Government may overturn the recent EPC announcement, however for the time being it can help to make a buy-to-let purchase more appealing and to some extent reduce the uncertainty in this area.

The Financial Conduct Authority does not regulate some forms of Buy to Lets. Your home/property may be repossessed if you do not keep up repayments on your mortgage.

Sources

  1. BBC (2023) Rishi Sunak: Cars, boilers and net zero – key takeaways from PM’s speech. Available at: https://www.bbc.co.uk/news/uk-66871073 (Accessed 22 Sep 2023)
  2. BBC (2023) What is net zero and how are the UK and other countries doing? Available at: https://www.bbc.co.uk/news/science-environment-58874518 (Accessed 22 Sep 2023)
  3. The Telegraph (2023) The oil boiler ban pushed back to 2035. Available at: https://www.telegraph.co.uk/money/net-zero/how-to-sidestep-the-planned-2026-oil-boiler-ban-heat-pump/ (Accessed 22 Sep 2023)
  4. BoilerGuide (2023) The Future of Boilers Explained. Available at: https://www.boilerguide.co.uk/boilers/future (Accessed 22 Sep 2023)
  5. Financial Reporter (2023) Sunak Scraps EPC Ratings – Industry Reacts. Available at: https://www.financialreporter.co.uk/sunak-scraps-epc-regulations-industry-reacts.html (Accessed 22 Sep 2023)
  6. CBRE (2023) Private Rented Sector Records Loss of 400,000 Rental Homes Since 2016. Available at: https://news.cbre.co.uk/uks-private-rented-sector-records-loss-of-400000-rental-homes-since-2016/ (Accessed 22 Sep 2023)

All the information in this article is correct as of the publish date 28th September 2023. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.

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