Home buyers, once they have become homeowners, still have options after they choose their first mortgage deal. Once their term is expired, they have the choice to remortgage for a new deal or they can allow their lender to move their mortgage onto the lender’s standard variable rate (SVR). The SVR strategy, while an easy route to take since it requires little of the homeowner as there is no shopping to do, is considered risky. There are times when a SVR is a riskier choice than others and perhaps there has been no riskier time in over decades than right now. For if homeowners desire to not pay more than necessary, then a remortgage could be the only choice to save money.

In years past, when interest rates were low or were expected to decline a SVR could be an acceptable choice for some homeowners. The SVR will adjust at the whim of the lender in response to the Bank of England’s actions concerning the standard base interest rate. If the rate set by the Bank lowers then there is a likely chance that the SVR will as well, but not always. Also, a lender could change the interest rate in a SVR according to their own criteria even without action of the Bank. Overall, a SVR is considered the less desirable choice for homeowners that feel comfortable with a set repayment amount or a limited repayment change due to household budget concerns.

There are choices in remortgages, and first mortgages as well, that offer more security in regards to staying within a budget. A tracker with a capped rate deal adjusts according to the Bank or the lender, but will adjust to a specific level only. It could allow savings should interest rates decline. There is fine print to read and understand and borrowers should ask questions and be sure to understand what kind of deal they are choosing.

A fixed rate is exactly what it sounds like in that it is fixed and does not change. It is currently a very popular choice of homeowners remortgaging as well as with home buyers. The rate allows during the term of the deal for the borrower to pay only the amount expected no matter if the Bank or the lender itself is raising rates.

During economic times when interest rates are declining, a fixed rate is not as popular with some borrowers as it does not allow their rate to decline if the Bank lowers their base rate or the lender chooses to do so. However, the ability to pay what is expected is still a choice that many make to better face budget needs.

Currently, interest rates are on the rise. Inflation is far above the target rate set by the Bank of 2.0%. Inflation is actually at a high not seen in over 40 years and it is expected to rise to 10% in perhaps a matter of weeks. To put a halt to the rising inflation rate, the Bank of England’s Monetary Policy Committee (MPC) will raise the standard base interest rate. The MPC has taken this action in the last four consecutive meetings. What was the historically low rate of 0.1% in December is now a quickly adjusted base rate of 1.0% with expectations of it to be hiked further.

During the last MPC meeting, many members desired the rate to increase by 0.5% instead of the voted on 0.25%. There are now warnings that the rate should be increased by larger adjustments and to a much higher level than it is now. Perhaps, it is being said by experts, a 3.0% rate or higher is desperately needed and sooner rather than later.

Homeowners are usually holding a large amount in debt in their mortgage. Even a slight increase in the interest rate could cause financial difficulty with household budgets not capable of expanding quickly. For years, homeowners have enjoyed rates that were unusually low. For many, they have never paid their debt based on the rates currently available and expected. It could come as a shock to many of just how much a slight interest rate change could cause hardship.

Household budgets are already taking a hit from inflation. Many budgets were in a state of recovery due to the impact of the pandemic and lockdowns. It is not unreasonable to look to the future and realize the warnings of the expectations for paying much more for fuel and energy this coming winter. Household budgets facing higher interest rates on their mortgage debt should take notice.

Deciding on whether to remortgage was not necessarily a priority in recent years. A remortgage could likely save money over taking on a SVR, but a SVR could be affordable. The risk of paying more was less likely due to declining rates, and homeowners were willing to take on the risk brought with a SVR.

This is not the case currently. Few would likely take on such a risk now. Imagine paying an interest rate that doubles or more overnight. That is a worry and a possibility due to the MPC’s need to handle inflation and a lender choosing to create their own criteria as to whether a SVR should increase.

A remortgage is for most the only choice when a mortgage has ended, is close to ending, or for some long before it is expected to end. There are many homeowners choosing to pay a penalty fee to end their mortgage term early to allow them to choose from interest rates available now versus what could be available in the future when their mortgage term expires.

Choosing to remortgage is likely the best strategy for most homeowners due to rising interest rates and forecasts of further increases. Luckily, shopping online makes the process easy to begin. By shopping the websites of lenders, or making a one stop shopping effort with a remortgage broker to get quotes from many lenders, a homeowner could have quotes in hand to discover what probable remortgage offers are available. 

The next MPC meeting is this month. There is no time like the present to create a strategy to save money and offer peace of mind against the changes and economic difficulties forecasted for the near future. Perhaps a remortgage is the choice already made due to the current economic strains.