Once home buyers become homeowners they tend to not pay that much attention to house prices. They have their home so why should house prices concern them. Actually house prices should concern homeowners because they do still have a connection to their current situation and by staying alert they can prepare when needed and take advantage of the situation as well.

When home prices are rising, or break records at new highs as has been the case lately, a homeowner’s property value could rise. If other homes in the same area are selling for higher prices than you bought your property then it could very well mean that you have added property value into your home or what is called equity. 

Equity is in simple terms the amount of value the home has that is not under a loan. For instance, if the original value for the home was £325,000, and the home buyer made a £25,000 deposit, then the base of the loan, not counting interest was for £300,000. If the property has risen in value to £400,000, then the difference between the loan to the value is the equity of £100,000. A homeowner also builds equity as they pay down the debt on the home if the value is retained as it was originally or increases. It is why when looking at a remortgage a homeowner will see reference to the loan to value or LTV.

Equity is important to a homeowner. Built up equity could qualify a homeowner for a remortgage that allows them to cash out the added value and put cash into hand with an equity cash release remortgage. The money can be used for whatever the homeowner desires. Many use it to invest back into the property with upgrades and improvements, to pay down debt, or finance an important purchase. Some use the money to build an emergency fund so the homeowner has cash easily available if needed.

Equity also can help a homeowner qualify for a better remortgage. The best remortgage offers are often reserved for those that qualify with a shining credit history or a lot of equity built up into the property. Lower interest rates are often associated when the loan is considerably lower than the value of the property.

House prices are a good indicator of the current value of a home. While it can lend insight to increases in value, there can also be insight to decreases in value. When house prices decline in the property area, it’s likely the value of a homeowner’s property will also decline. 

This could be a dangerous financial situation for a new homeowner and it is a concern of many experts due to the last few years of buyers purchasing at very high prices. Their loans might have been high, but due to historic low interest rates it was affordable. Now rates are rising, and it could spell trouble.

Not only could homeowners find themselves paying more expensive repayments due to higher interest rates, but they could find their mortgage underwater. Being underwater is when the value of the home falls below the level of debt on the home. Some experts believe the UK housing market is headed for a crash and values will plummet. Certainly, there is an expected slowdown in house prices as many first time buyers will be closed out of the market with higher interest rates and that will lower demand in the market. 

With a decline in house prices and a decline in property values, those that are sitting on new mortgages and have not yet had the time to pay down the principal debt to reflect a reduction in debt could indeed find themselves imprisoned to their current mortgage and rising rates and no ability to remortgage for relief.

Currently a remortgage is offering safety nets to homeowners concerned with paying higher repayments. By choosing a fixed rate remortgage they could lock in a low interest rate for the duration of the term. If interest rates continue to climb due to rapid rate inflation then securing in place a low rate of today is certainly better than facing continued increases and facing higher interest rate choices in the future.

Mortgages underwater cannot remortgage until they have brought down the amount they want to borrow below the value of the property.

Those homeowners aware of what declining house prices might mean could be taking advantage now of their current home value and seeking a remortgage sooner rather than later.

House prices matter. They matter to home buyers, but they matter to homeowners as well because they matter to lenders.