Martin Lewis has addressed the question he says he is asked most often at the moment: whether people with savings should use them to overpay their mortgages. Appearing on ITV's This Morning, the personal finance expert said people are worried about their mortgages but unsure whether to pay them off early or keep their money in savings instead.
The dilemma comes from interest rates, which are pushing mortgage costs up while also delivering better returns on savings accounts. Presenter Ben Shephard asked: "So that question that you get asked more often than anything. Should I overpay? If someone is lucky enough to have some savings and the opportunity to do something like that, should they overpay?"
Savings figures and priorities
Lewis noted that times are challenging and many people are trying to make their money go further. He said: "Whenever I talk about savings, people go, who's got savings? I mean, just report from Bank of England today, an extra £4.7 billion has just been put into savings."
He added: "In the pandemic alone, £150 billion. We have over a trillion quid worth of savings in this country. This is not a small issue and it's why we get more questions about savings and debt when we do the open phone it. So that's why I wanted to cover the subject."
Lewis stressed that before taking any action, people need to establish their biggest financial priorities and identify where they could cut costs. He explained: "First thing you do if you've got other expensive debt, you know, credit card debt, a loan that's expensive that you are allowed to overpay without penalties. You want to clear those before you're clearing your mortgage because their interest rate is high. So, we'll start with that."
The simple rule of thumb
Beyond tackling costly debt, he said people then need to work out the maths when it comes to savings versus mortgages. He said: "The next question is - if your mortgage rate is higher than the after tax rate you can earn in savings, you would in principle want to overpay your mortgage rather than save."
He gave a simple example: "You've got £1,000 in the savings account at 4%. You're going to earn £400 a year, although it may be taxed. You've got £10,000 of debt on your mortgage at 6%. It's going to cost you £600 a year. Overpaying the mortgage has the effect of saving at the mortgage rate. That's why the easy comparison."
He also suggested using a mortgage overpayment calculator and gave context: if you overpay £200 a month on a 5% mortgage with a 20-year term, you would clear it four years early and save £30,000 in interest.
Inflation outlook
Inflation is widely expected to keep climbing in the coming months as soaring energy costs feed through the system, with households bracing for roughly a 4% jump in the energy price cap from next week. The Bank has forecast inflation will climb to around 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027.
Lewis outlined his straightforward rule: "There's a simple rule of thumb here. If your mortgage rate is higher than the after-tax rate you can earn on savings, you're generally better off overpaying the mortgage. If your savings rate is higher than you're paying on your mortgage, you're generally better to save."
