Homeowners are going to be facing difficult times ahead. Experts are warning that they should prepare. There won’t really be anything to stop the woes that are coming, but they could be dampened. Preparing sooner rather than later could make all the difference. So, what is so special about homeowners that they are being singled out in news reports and financial articles? They are going to face financial strains not seen in decades. 

It is almost like the perfect storm is forming. Everyone can only stand back and watch it form and wait to see just how fierce and difficult it will become and how to navigate the situation once they are totally enveloped in the storm.

One of the things that is causing concern is interest rates. Yes, they have risen. Yes, they could rise even more. However, there are homeowners unaware of the consequences. Many homeowners have fixed rate loans. The rate has been locked in for the duration of the mortgage term. Rising rates are not a concern to those not impacted by them. It could very easy for a homeowner to bypass the warnings and then be face to face with the reality of higher rates all at once.

As mentioned, many homeowners have fixed rate loans. Their interest rate is locked in if they have a fixed rate loan. Their term may have shielded them, but the term will come to an end at some point. For many, their term will end in two or five years after secured and millions are reaching that end this year.

If they secured their loan two years ago, they did so when the Bank of England’s Monetary Policy Committee (MPC) had lowered the standard base interest rate to the lowest ever in the history of the Bank. In over 300 years the rate had not been lower. It was lowered to 0.1%. Due to inflation, the MPC began to raise the rates starting in December 2021. It would be the first of ten consecutive meetings that resulted in a higher interest rate. 

The rate now sits at 4.0%. Paying on a loan with 0.1% interest rate and one at 4.0% is very different. Of course, the rate offers from lenders were closer to 2% and those found in the last few months have been from 4.5% to 6.0% or even more. Again, that is a large gap and the cost in repayments for homeowners could be shocking.

Homeowners that come to the end of their term are being encouraged to shop for a remortgage rather than allow their lender to move them to a riskier standard variable rate or SVR. With a remortgage, the homeowner is likely to find a lower interest rate and save money as well as be able to choose a fixed rate and shield themselves from further rate hikes.

Along with higher interest rates which equates to more expensive borrowing and higher repayments, homeowners could find their property values declining. It could be easily overlooked as well, but it shouldn’t be pushed aside as house prices begin to fall in the UK housing market. Property values matter and not only when the homeowner chooses to sell. 

The level of property value in relation to a desired loan will determine if a homeowner could remortgage to save and which remortgage offers are within reach. The loan to value or LTV brings better rates if the value is greater than the loan amount. The higher the value of the property in comparison to the loan offers less risk for the lender. A homeowner should care about house prices and how that feeds in to their property value as it can impact if they can remortgage and what new rates they could be offered.

As property values decline, some homeowners could go into negative equity. Homeowners in negative equity and out of reach of a remortgage will be unable to secure a lower rate with a new deal and will face further rate hikes. 

Also, those unwilling to take on higher interest rates and with them higher repayments, could consider selling their home. Some will likely make that choice as there is still demand in the market. However, buyers are fewer and less likely to purchase at a price that would be above prices sought a year or more ago. It could leave some homeowners with very little profit after their initial investment into their home.

Experts encourage homeowners to prepare for financial strains ahead by getting familiar with their current mortgage. It will be important to know when their term is due to end and other details of their current deal. The next step is to shop for a remortgage. It is easy and quick to do online. 

Visiting a remortgage lender could put a possible quote in hand in a matter of minutes. Going to others would offer quotes to compare. Shopping online with a remortgage broker could put many quotes from a variety of lenders quickly in hand to review and compare. Brokers could also have exclusive deals not offered directly from lenders to borrowers.

With quotes in hand, a homeowner could put a strategy in place. Some will choose to take on a penalty fee to end their mortgage term early and remortgage with current rates rather than wait till their term would end and face higher interest rate offers. Some will wait out their term and stay alert to property values and pay down debt on their loan to ensure that when they do remortgage they get to choose from better rates. 

Those that have already had their term end will likely begin the remortgage search seriously and seek to get a new deal as soon as possible. It is also likely that those that previously chose a short term will look for a longer one to lock in their interest rate for a more lengthy period and avoid the stress of worrying about rising rates in the near future.

Forecasts on the housing market can vary from a slight decline to the greatest decline in decades causing property value losses in double digits. There are forecasts of a long and hard to endure recession to a recession that comes and goes quickly. Inflation had been thought to bring much higher interest rates than now forecasted. There are many unknowns, and it is difficult to narrow in on what exactly can be expected.

However, the likelihood of escaping financial strains is low. Budgets are weak and will continue to be for the time being and for homeowners, higher repayments could be extremely difficult to take on without help. A remortgage could be the help needed. It is certainly worth considering, and to get started, as previously mentioned, it’s time to get familiar with your current mortgage deal and then perhaps start shopping for a new one.