Homeowners are facing higher repayments as the Bank of England’s Monetary Policy Committee (MPC) voted on Thursday to raise the standard base interest rate another 0.5%. In the start of December 2021, the base rate was at almost zero having remained steady for the entire year at 0.1%. Inflation growth pushed the MPC to raise the rate for the first time since the pandemic had taken hold and lockdowns began. The first increase raised the rate to 0.25% and further rate hikes during the last nine consecutive MPC meetings this year will close out the rate at 3.5%.

This will put more pressure on already strained household budgets. Inflation has taken its toll, as well as higher energy costs. Now borrowing is more expensive and is due to become even more so as further rate hikes are expected in 2023.

It is forecasted that the MPC will be required to raise the base rate to 4.5% or more to bring inflation under control and bring growth to a halt. However, the Bank has stated that inflation has reached its peak and the UK economy is now due to enter a prolonged recession. The Consumer Prices Index (CPI) stands at 10.7% which is far above the Bank’s target rate of 2.0%.

Inflation will not decline quickly due to the labour market according to Bank Governor Andrew Bailey. Therefore, further rate hikes are expected. 

Borrowers that will be impacted by these higher rates should prepare. One such group are homeowners. Homeowners that are coming to the end of their mortgage term will likely face much higher rates than were available when they first started their term. This could be homeowners that remortgaged when rates were at historic lows or first-time homebuyers.

New homeowners are at risk beyond affordability with higher interest rates. Due to the lack of time to build equity and pay down their mortgage debt, they could fall into negative equity should property values decline. This situation occurs when home values recede, and the result is a loan that is higher than the value of the property. It is known by many terms such as negative equity or being underwater with one’s mortgage.

There are many reasons a negative equity situation could cause difficulties, but perhaps one of the most difficult is being unable to remortgage.

Remortgaging is being encouraged by experts. All homeowners should inquire as to whether a remortgage would be helpful no matter where they are in their current term. Those that have already had theirs end and have not remortgaged should consider doing so. Homeowners nearing the end of their term would do well to shop early for a new deal. However, even those not close to their term ending could benefit as well.

Because rates are expected to rise, some homeowners are choosing to pay a penalty fee to end their term early. It allows them to remortgage at current rates rather than possibly higher rates when their term would end.

Those that have already had their term end and did not remortgage are highly encouraged to shop for a deal. Without a remortgage, at the end of a homeowner's term, they are moved to the lender’s standard variable rate (SVR). A SVR is usually a higher rate than those offered with a remortgage. Paying on a SVR could be taking more out of the household budget than necessary. Also, further increases are in the future for those on a variable rate.

With a fixed rate remortgage, a homeowner could lock in a rate throughout the new term. Not only could savings be found when compared to a SVR, but also even more savings as the homeowner avoids any further rate hikes.

It is simple to shop for a remortgage online. A few minutes after visiting a remortgage lender a quote will be in hand to review opportunities available. Going to more remortgage lender sites will put more quotes in hand to compare. A homeowner could also visit a remortgage broker and get several quotes from a variety of lenders to compare. Remortgage brokers are not only a one-stop shopping experience for homeowners, but they might also have exclusive deals not offered directly from lenders.

The ability to remortgage is perhaps the most significant opportunity to save money for a homeowner. This is due to the large value of the loan usually attached to a mortgage. The higher the interest rate being paid equates to the cost of borrowing and it has become much more expensive to borrow in just one year. 

Rather than put off the ability to save and even shield against further rate hikes, a homeowner should shop for a remortgage sooner rather than later. It is simple, quick, and the result could offer peace of mind when there are fewer and fewer opportunities to do so these days.