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Following the Bank of England slashing interest rates once again, new figures have revealed that the number of homeowners in the UK that have started to overpay on their mortgage has more than doubled over the last year.

As those with tracker mortgages strive to take advantage of the historically low interest rate, which is saving some lucky ones a whopping £750 a month in interest repayments, others are eager to secure a better mortgage deal by overpaying on their current loan.

The term ‘overpaying’ refers to the growing trend of people paying off more of their home loan than is required each month, thus reducing the amount they owe on a property.

As the low interest rates are not good news for the savers amongst us, many believe that overpaying on their mortgage makes good financial sense in the current climate, given the low return on most savings rates.

The figures from the Co-Operative Bank revealed that 80 per cent of the UK homeowners surveyed who were overpaying on their mortgages were doing so due to the poor returns they were getting on their savings.

Still, its not all doom and gloom for savers - one way to keep savings up and increase returns on investment during the interest rate low is to rent out a property, as the current rental yield of letting out a flat or house is on average between four and five per cent across the UK, far higher than the current interest rate of 0.5 per cent.

Ian Potter, Operations Manager of the Association of Residential Lettings Agents (ARLA) said, "With interest rates so low our members are seeing investors tempted back to the buy-to-let market as rental yields offer a greater return than the banks.

"With financial markets in crisis, it’s clear that bricks and mortar are a safer bet than stocks and shares.

"Buy-to-let remains a solid investment, particularly if you’re looking to commit for the long term and not out just speculatively investing or looking for quick capital uplift," added Mr Potter.

Still, back to the main story – and Terry Jordan, Head of Mortgages at The Co-operative Bank, said, "It would appear that with interest rates now at an historic low, customers are recognising more than ever the benefits of making overpayments.
 
"The figures also identified why people were not overpaying on their mortgage. Apart from lack of income, almost a third of those not overpaying would prefer to put their money into savings and 24 per cent of people are spending any excess money they have on holidays and clothing.

"Providing their mortgage allows the flexibility to overpay, at the current time it can make real financial sense for customers to make even small monthly overpayments, as these can really add up to a large difference over the lifetime of the mortgage," added Mr Jordan.

Many people are being advised to overpay as, with house prices falling, the level of equity a customer holds in their property is falling alongside.

By making mortgage overpayments, borrowers may help maintain or even increase the equity on their property.

Banks all across the UK are reporting an increase in the number of borrowers looking to overpay on their current mortgage.
 
In January, Lloyds TSB reported more than 27,000 requests from customers to overpay their mortgage since the interest rate cuts first kicked in.

Director General of The Council of Mortgage Lenders Michael Coogan said, "We encourage overpaying on mortgages for those who can afford it.

"Now is also a good opportunity for borrowers on interest only mortgages to switch to repayment mortgages to use this period of low interest rates to start to pay down their loans," added Mr Coogan.