Last week the Bank of England’s Monetary Policy Committee (MPC) held their September meeting resulted in a vote to slow inflation by increasing the standard base interest rate to 2.25%. The 0.50% increase to take the rate above 2.0% is the seventh time the MPC has made a rate hike. The first increase in years occurred last December when the historically low interest rate of 0.1% was pushed to 0.25%. Including that meeting, seven consecutive gatherings have resulted in increases taking the rate to the highest level seen since 2008.

There are thousands of homeowners that have recently had their mortgage term end, and others are due to end early next year. Those that started with a two-year mortgage will have chosen from interest rates that were historically low making borrowing the cheapest it has ever been. Now as those terms end, they will be facing higher rates not seen in almost 15 years. The expense to their household budgets could be shocking and for some it could create a financial crisis.

When a homeowner’s term ends, they could remortgage for a new deal, or without a remortgage they allow the lender to move them to their standard variable rate (SVR). Variable is the key word here as it means the rate will change. When rates are rising the lender’s SVR will do the same, and how much it rises is determined by the lender. It has been reported that a SVR could be double or more the interest rate found on a remortgage. If a SVR is more, and in some cases double or more, than a remortgage, the homeowner is paying more than necessary at the start and if rates increase that cost continues rising. 

A remortgage could offer savings and relief from further interest rate increases. While remortgage rates are not as low as they were two or more years ago, they are likely less than the lender’s SVR. The savings starts by simply choosing to secure a lower interest rate. Further savings are found when the homeowner chooses a fixed rate remortgage which locks in the interest rate offering shelter from future interest rate hikes.

More increases are forecasted by experts. There have been reports of the Bank pushing the rate to 4.5% which would push borrowing to double of what it is currently. If there are financial strains for homeowners now, then doubling the current costs in borrowing could be devastating for many.

Experts warn homeowners that have already had their terms end and are on a SVR to shop for a remortgage yesterday. In other words, it should be done as soon as possible. It takes time to process a remortgage and the Bank’s rate could change again at the next MPC meeting in November. Of course, lenders could pull their best deals from the lending market at any time.

Homeowners close to having their term end should start remortgage shopping sooner than later as well. Some homeowners are choosing to take on a penalty fee to end their term early to allow remortgaging at current rates rather than face possible higher rates when their term is due to end.

It should be noted some homeowners could find it difficult to remortgage if they wait too long. 

There are many factors that go into qualifying for a remortgage, including property value and on time payment history. If home buyers start leaving the housing market due to affordability in house prices or higher interest rates or both, property values could begin to decline. If the homeowner’s property value declines below their debt level for the property, a remortgage is not possible. The homeowner is “underwater” with their mortgage and would have to pay down the mortgage debt to below the property value to qualify. Depending on the level of being “underwater” it could amount to thousands if not tens of thousands of pounds or more.

Also, if the higher interest rates cause repayments to become a financial burden and the homeowner misses or is late on payments, they could be denied the ability to remortgage until financial stability is established. At the very least, they will be denied access to the best remortgage rates and therefore denied savings that could have been substantial.

The warnings of difficulties ahead are not to be ignored. Energy costs are soaring, and winter is around the corner. Inflation is causing strains on food affordability. Higher interest rates are taking more out of budgets especially for those with large value loans such as a mortgage.

Preparation and taking advantage of opportunities to save and build a financial safety net could be the answer to the difficult questions arising. Remortgaging might be the opportunity homeowners are needing.

It is easy to discover what remortgages are available by simply shopping online. A few minutes on the website of a remortgage lender could put a quote in hand. Visiting the site of a remortgage broker could put many quotes in hand from a variety of lenders. An exclusive deal could also be offered that would have been missed.

Gathering quotes to review and compare will offer information to determine which is the best remortgage. Of course, with rates rising and the possibility of rates doubling from current levels, almost any remortgage could be the best remortgage if it offers shelter from such a scenario.