The expectation of falling property values has become more of a reality with the latest forecast for the mortgage lending market. Mortgage demand could hit a 12 year low as hopeful home borrowers find it more difficult to climb onto the property ladder. Not only are home buyers facing higher asking prices that remain from the rush to buy during the pandemic, but higher interest rates have become more expensive with the Bank’s rate the highest in 14 years. Saving for a deposit has also been hampered due to higher energy costs and inflation. Due to the difficulty in saving being impactful to so many, even the Bank of Mum and Dad will find it difficult to lend to their children desiring help in becoming homeowners.

Also, lenders are expected to become more cautious in lending which will also cause a difficulty in seeking a mortgage. Due to the strong possibility that there will be many loan defaults in the months ahead, lending will be tighter.

The difficulties facing hopeful home buyers could in turn hurt homeowners. 

As the UK housing market sees less demand, property values could then decline to a point in which newer homeowners will fall into negative equity. This is when the homeowner’s home value falls below their level of debt. It will put those homeowners into a difficult financial situation, especially since they will be unable to remortgage.

Even those that do not fall into negative equity could be impacted. As the value of a home declines, the homeowner will enter a different level in their loan to value borrowing. The loan to value or LTV is used along with other criteria to determine which remortgage offers are available to the homeowner.

The higher the value in comparison to the loan helps the homeowner qualify for better remortgage offers. This is due to the lower risk of the lender in providing the loan. Therefore, even if homeowners with declining value don’t fall into negative equity, they could still be impacted by not being in reach of the lower interest rate remortgage offers.

Experts have encouraged homeowners to shop for a remortgage as soon as possible. It could help the homeowner make an informed decision and set up a strategy to better handle the current economy and what is expected to happen in the months ahead.

Interest rates are due to rise further. The Bank of England’s Monetary Policy Committee (MPC) has increased the standard base rate during each of the last ten consecutive meetings. When the first increase occurred in December 2021, the base rate was almost zero at 0.1%. The rate, having increased last week during the February meeting, is at 4.0%.

Of course, that is the Bank’s base rate, and lenders will be offering rates higher than 4.0%. This is a concern, as many homeowners obtained their current, but soon to expire, mortgage term at 2.0% or less when the base rate was at almost zero. Coming to the end of their current term could be a financial shock to the household budget facing a new rate much higher, at perhaps 3 times as much or more. In fact, some homeowners would likely have not been able to afford their home had they first mortgaged at the rate levels currently offered.

Coming to the end of a mortgage term allows the homeowner to remortgage for a new rate. They can at this time also choose a different type of loan. The most popular choice is a fixed rate remortgage. The fixed rate locks in the interest rate and shields the homeowner from further rate hikes for the length of the new term.

Not remortgaging sees the homeowner moved to the lender’s standard variable rate (SVR) which is typically a higher interest rate than what could be found with a remortgage. The SVR also subjects the homeowner to further rate hikes.

Therefore, the homeowner should consider a remortgage to save from a more expensive rate of a SVR and find savings from any further rate hikes by the MPC.

Some homeowners are choosing to take on a penalty to end their mortgage term early to allow them to remortgage with current rates rather than wait out their mortgage end and face higher interest rates than those available now.

Creating a smart strategy begins with understanding what remortgage offers are available. It is easy to shop for a remortgage online. The homeowner can gather many quotes to compare from a variety of lenders by visiting the website of a remortgage broker. Brokers often have exclusive deals not offered directly from a lender to a borrower. Remortgage brokers could also be quite helpful for those expecting to have a difficult remortgage, for the broker will know which lenders are most likely to work with a homeowner due to their unique remortgage needs.

A homeowner also has the option of shopping online by going from one remortgage lender website to the next to gather offers to compare and review.

There has been more optimism for the economy, but it does not offer us yet a sign that a recession is escapable, that interest rates will not increase, or that inflation will cease to take a toll on household budgets. It is good that spring weather is not far off and warmer days ahead. It will help offer relief from the higher energy costs robbing budgets during cold winter days.

A remortgage could be most helpful for a homeowner. Rather than wait and allow factors to pile up against a borrower trying to set a strategy in place to survive and maybe even thrive in the economic environment ahead,  they should shop online for a new deal and do so soon.