Homeowners should be alert as to the latest reports surrounding the data released by Halifax on the housing market. Most experts are commenting the data points to a strained market throughout next year. This could put pressure on those homeowners with little equity built into their property, this would be fairly new homeowners or those that have cashed out their equity feeling confident in the housing market months and a few years past. The Halifax report revealed that the September annual average house price declined by 4.7%, followed by the August report that experienced a 4.5% fall. 

The report’s data reveals the largest annual decline since the financial crisis in August 2009 when the drop was 5.5%. The September data is the sixth consecutive month Halifax has reported a fall in the average house price.

The current average house price of £278,601 mimics prices from early 2022. The average is now 1% above the average house price level when the Bank of England’s Monetary Policy Committee (MPC) first began their rate hikes that resulted in fourteen consecutive meetings with majority votes to raise the standard base interest rate. The then 0.1% base rate was increased to 0.25% and continued to rise until the recent MPC meeting in September. The 5.25% rate was allowed to remain steady due to a favorable inflation report.

Higher borrowing costs, the continued impact of inflation, and the threat of higher energy costs again this winter could be causing a more cautious outlook for consumers. The Bank’s target rate for inflation is 2.0% and was last reported at 6.7%, which is still more than three times the target. This is why there has been a subtle statement by those that believe the 5.25% current rate could be the peak rate. It rests on inflation, and if necessary, the MPC will indeed increase the rate again.

If the housing market declines further in 2024, rising interest rates will not be the only issue for homeowners coming to the end of their mortgage term or for those that have had theirs end and were moved to their lender’s standard variable rate, which is normally more expensive than the rates offered with a remortgage. 

Declining house prices in a region can lead to declining property values. The loan to value or LTV is an issue when a homeowner seeks a remortgage at the end of their mortgage term, just as it was an important point for lenders when a purchase was considered.

The value of the home in relation to the loan request is important. The higher the value and the lower the loan, the less risk for the lender. The higher the loan in relation to the value of the property establishes risk and therefore the interest rates offered to the borrower, whether it is a home buyer or a homeowner. 

For homeowners, their ownership in the property is important and that grows as they pay more toward their debt. The more they pay, the less owed, and the greater percentage they own in the property. Another way to build equity is for property values to increase either due to the market or it might occur due to upgrades and improvements the homeowner makes to the property. 

Either way, equity matters and property values matter, and when a homeowner is new in paying down debt and house prices decline in their area, there is a threat of negative equity.

Negative equity, when the homeowner owes more on a property than the value of the property, will shut a homeowner out of the ability to remortgage. At the end of their mortgage term, they will not be able to shop for a remortgage and will instead be moved to their lender’s standard variable rate or SVR. The SVR will likely have a higher interest rate and being a variable rate could change quickly and at the decision of the lender. In other words, even if the MPC does not increase the base rate, the lender could increase their SVR.

Despite the MPC holding the base rate steady in September, many lenders lowered their offered rates. It was in response to a slower lending market and a developing competitive environment among lenders due to a more optimistic outlook on lending. The recent cuts in offered rates could disappear as quickly as they appeared, and for those on SVRs they may not have experienced a cut at all but could be subject to the next increase.

A SVR is considered a risky loan rate, especially for those with tight budgets or budgets not able to absorb higher repayments quickly and for possibly long lengths at a time.

A fixed rate remortgage is thought to be a safer choice which is why it is popular for home buyers and for remortgaging homeowners. It locks in the rate for the duration of the new term, and as mentioned, remortgages usually are connected to much lower rates than would be found with a SVR.

The decline in house prices is an important issue. It could be a tell-tale sign of the hardships to come in the coming year for the economy. It is also a sign for those homeowners who are due to come to the end of their mortgage term in 2024. Because shopping for a remortgage online is quick and easy, it is encouraged by experts for all homeowners to shop and determine where they would be in the lending market if today was the day to remortgage. 

Getting acquainted with one’s current mortgage would be helpful as well. Knowing what kind of loan was secured, when the term will end, and what the interest rate is currently will help a homeowner create a strategy for saving money and avoiding a SVR.

Homeowners can often secure a remortgage six months prior to the expiration of their term without a penalty fee for ending their term early. Others can secure the deal and await the day their term ends and continue on their current interest rate. Some may feel escaping a SVR is important and want a remortgage right away. Still there are those that will consider a penalty fee to end their term early to secure a deal now at current competitive and lower than expected rates than possibly face higher ones when their loan would be due to end.

Economic reports are important, but they can become jumbled into each other and some just don’t warrant an immediate stress response should they be directed at gloom and doom, but for homeowners, paying attention to the current house price reports could motivate them to begin shopping for a remortgage before it is a stressful event.