Paying mortgage debts is more cost-effective than saving

Brits living in UK property with a mortgage should be looking to pay off the long term loan rather than trying to save money in a bank account, according to the advice of one expert.

This tip comes in the same week as it was reported that there are now an increasing number of people in the UK who are opting to put money into a high interest current account as opposed to trying to over pay on their mortgage, which would allow them to be out of debt much earlier.

First Direct said that only 21 per cent of people with some disposable income are paying more than they have to on their mortgage for their property for sale, while 42 per cent are putting more money into bank accounts than in the past to save for the future.

However, Paula John, editor-in-chief at Your Mortgage, said that there are not nearly enough people overpaying on their mortgage, despite the fact that she said it is far more "cost-effective".

"Fortunately, over the last couple of years, more people have overpaid than before. People who can afford it and have got spare cash, have been taking advantage of overpayments because interest rates are very low.

"More people have been overpaying, but still not enough; it doesn't actually make sense and doesn't add up for you to be putting money into a savings account and not using it to pay down debt instead. It is simply a more cost effective thing to do."

She also said that it was concerning that the First Direct report found that 31 per cent of people were not clued up on the interest rate of their mortgage, while 43 per cent said that they did not know the total cost of their policy, including interest.

Ms John added that there is an educational job to be done in the UK, in order that more people learn how to better manage their mortgages.