Losing home buyers from the housing market would do more than just harm the goals of property sellers. The economy is strongly dependent on the UK housing market, and on a more personal level, so are homeowners, but not because they have become home sellers. Homeowners depend on their property values to obtain access to remortgaging. The better their ratio of loan to value, the less risk of the lender and the better remortgage deals available to the homeowner. Unfortunately, the forecast is for the current interest rates to keep homeowners away from the housing market, but according to Nationwide they are leaving slowly, if at all.

The UK housing market has remained resilient at times when even the experts did not hold much hope for home buyers staying tied to their homeowner dream. Even through Brexit and the global Covid pandemic, home buyers remained. However, so did affordable interest rates and during the pandemic interest rates were more than just affordable, they were at all-time historic lows from most lenders. The lower interest rates that kept the attention of home buyers are gone.

The Bank of England’s Monetary Policy Committee (MPC) has been fighting inflation and during the last thirteen consecutive meetings voted to increase the standard base rate. During the June meeting, the MPC took a more assertive approach to stubborn inflation and increased the rate by 0.50% to 5.0%.

The standard base interest rate is now more than it has been in a decade. While home buyers unsure of the affordability of higher interest rates can adjust their shopping choices to a lower cost property or step away from the market entirely, homeowners must endure the changes in the lending market. At the end of their current mortgage term, they will lose their interest rate and choose from new ones offered from lenders, which means a remortgage. Without the choice of a remortgage, the homeowner will be moved to their lender’s standard variable rate or SVR, which is usually a higher rate than would be found with a remortgage. In fact, a SVR could be double or more the rate found with a remortgage, taking more money from the homeowner than necessary had they remortgaged instead.

Experts and homeowners have been carefully watching any news of the housing market. Experts are predicting the higher interest rates will cause home buyers to become more cautious and perhaps rethink or hold off their plans to buy. Homeowners are crossing their fingers that the doom and gloom some predict for the housing market and house prices will not transpire.

On Friday, Nationwide reported the average house price had risen slightly. It rose only 0.1%, but it is an increase, nonetheless. 

Experts had predicted a decline of 0.3% between May and June. Despite the monthly increase, looking back a year reveals the true state of the housing market as the average house price declined annually by 3.5%. It should be noted that despite the large annual decline, experts had expected a greater one of 4.0%.

One bit of data is more concerning. While the monthly and annual data has both a warning as well as a sign of resilience, the average house price decline was the fastest annual decline since 2009 during the economic crisis.

Homeowners are likely to retain their property values for a few weeks ahead, which will keep those in positive equity afloat. However, those with little equity built into their property, which is likely most new homeowners, should be warned. Should their property values decline below their level of mortgage debt, they will be in negative equity and out of reach of a possible money saving remortgage.

A remortgage could not only offer savings to a homeowner avoiding a SVR, but with a fixed rate deal avoid the predicted interest rate hikes in the months ahead. The current inflation rate is 8.7% and still over four times the Bank’s target rate of 2.0%. More base rate hikes from the MPC are highly likely and homeowners on SVRs or other variable rates will be facing even higher rates when the increases occur.

The predicted peak level of the base rate has rapidly ascended as experts have revised their forecasts from 4.8% to 5.5% to a most recent base rate high expectation of 6.25% by the end of the year. In context, for a homeowner coming off their fixed rate deal of two years ago, a new two-year deal offering would equate to an increase of over £380 a month. 

The higher interest rates offered to homeowners coming to the end of their mortgage term is just another financial strain following the impact on their budgets from the pandemic and inflation. Rather than pay more than necessary, homeowners are strongly encouraged to consider a remortgage. With the ever-changing economic environment and the expectations of the housing market, doing so sooner rather than later is the best advice from most experts.