The last few years have been difficult for homeowners. In the blink of an eye, the Bank of England’s standard base interest rate grew from 0.10% to 5.25%. This put homeowners facing much higher interest rates when their mortgage terms ended, and they shopped for a remortgage. While choosing a new deal from lenders would offer vastly different choices than before, a remortgage is still the path to savings as avoiding a standard variable rate (SVR) is the best option. Allowing a lender to move their loan if bypassing a remortgage could have the homeowner paying more than necessary on a SVR.

As homeowners come to the end of their terms, they have the choice to remortgage or to allow their lender to move them to their SVR. Avoiding the higher interest rate and riskier SVR is the usual course of action as substantial savings could be found with a remortgage, but there have been unique situations for homeowners and getting used to the new normal in rates is difficult.

In March 2020, the MPC cut the interest rate to 0.1% due to the global pandemic. It was the lowest rate the MPC had ever voted for in the history of the Bank of England. Along with the Bank’s rate, lenders offered their own historically low rates. Home buyers and homeowners remortgaging had the choice of amazingly low and cheap deals.

In December 2021, in response to inflation growing rapidly, the MPC voted to increase the base rate to 0.25%, which while low was more than double the previous rate. In every consecutive MPC meeting until September of last year, the rate was increased. It was in September 2023 the MPC felt they had reached the peak rate to bring down inflation to 5.25%. In comparison of the lender’s offers, one can easily consider the offers would be drastically different with a Bank base rate of 0.1% versus 5.25%.

For the millions of homeowners coming to the end of their term this year, the cost of borrowing will be more expensive if they obtained their current deal during the lower rates offered due to the economic impact of the pandemic. However, savings could be found in choosing a lower remortgage rate over their lender’s SVR.

Higher rates have put financial stress on many homeowners as affordability became an issue. Not only has it become harder to stay a homeowner in recent years, but it is also harder to become a home buyer. 

When the interest rates were historically low, home buyers were able to pick more valuable homes with cheaper rates. First time buyers were often passing over starter homes and taking on what would have been an upgrade home later on in their homeownership journey, and the strong demand in the housing market moved asking prices higher. 

House prices grew and broke records month after month. While higher interest rates have remained, so have average house prices. It is expensive and costly for home buyers to climb onto the property ladder. According to a recent report from Rightmove, the average mortgage monthly repayment for first time buyers has grown beyond £1,000 a month.

The average has grown since 2019 by 61% to £1,075 a month from an average of £667 five years ago. In comparison, average wages have grown by only 27% over the same period. 

New first-time buyers have had to become creative to become homeowners. From borrowing money for deposits from family and friends, to choosing less expensive homes requiring do it yourself projects. Another option for home buyers is choosing long mortgage terms of thirty years or more to make their monthly repayments more affordable.

Tim Bannister, property expert with Rightmove, remarked, “As rates have increased over the last five years, the amount that a typical first-time buyer is paying each month on a mortgage has outstripped the pace of earning growth. Some first-time buyers are looking at extending their mortgage terms to 30 or 35 years to lower monthly payments, or looking at cheaper homes for sale so that they need to borrow less.”

The past few years have presented a unique situation with historically low interest rates. Inflation then growing to double digits and the base rate growing to 5.25%, a 16 year high, is also a unique situation. The creativity and effort required to become a homeowner has grown. That same effort is needed to stay a homeowner, but it is easy and quick to discover a remortgage. By simply going online and shopping for a remortgage, homeowners could find the best deal for their unique needs and save money by avoiding a SVR.