As house prices rose across the UK, home buyers were still able to manage a climb onto the property ladder due to low interest rates. During the time, up to the end of September last year, the stamp duty holiday also assisted buyers. However, now that house prices are higher due to a shortage of supply in the market, and interest rates are higher, it is expected that a large number of hopeful home buyers are once again going to be shut out of the housing market. This could cause yet another problem, especially for homeowners.

Demand in the market could be shifting according to experts. With fewer able to afford to buy property, supply will increase, demand will drop, and prices will as well. In other situations, a drop in prices would spur buyers back into the market, but at the time prices will begin to sink, inflation will have taken a toll and interest rates could likely be even higher than they are now.

Since December, the interest rate set by the Bank of England has been increased twice. The rate has gone from 0.1%, which is almost zero, to 0.5%. It is still very low, but it can make a major difference in the cost of borrowing, especially if the amount borrowed is at the levels usually seen to purchase a home.

The interest rate is how cost of borrowing is determined. The higher the interest rate, the more it will cost in repayments and overall for borrowing the initial amount of the loan.

This could very well cause financial hardship for homeowners that are not prepared for higher interest rates. Home buyers that have purchased in the last few years, especially during the pandemic, will have gotten into a loan that perhaps had interest rates that were or were near the lender’s historic low level. Once the term of their mortgage ends, they will be shopping for a remortgage or allowing their lender to move them to their standard variable rate or SVR.

Since at times SVRs have been known to be double the rate of a remortgage, and they can quickly increase with little allowance of time for a homeowner to rush to remortgage, it can become a horrible reality to see what they will now have to pay each month due to rising interest rates.

Those seeking a remortgage have more options. They will likely discover lower interest rate offers than their SVR, and for those that choose a fixed rate remortgage they could lock in the lower interest rate during the term of their loan. This could allow them to save immediately as well as against rising rates. 

Homeowners that took out their loan during the pandemic, or prior, that have their mortgage term end toward the close of this year or later will be facing interest rate options much higher than they were used to paying.

Experts encourage homeowners to shop for a remortgage no matter where they are in their timeline with the loan. If they have already had their term end, then the advantage is obvious to shop sooner rather than later and secure an interest rate offering of today before another rate hike. Those that are close to having their term end should determine if it is time to take action now to save more. 

Even those homeowners that are not close to having their term end must determine if the risk of waiting for the expiration of their deal will be at a time where the interest rates offered will be affordable for them, or it is more advantageous to secure a fixed rate deal now and get an interest rate that will last for longer. There will likely be penalty fees involved for ending the deal early, so it will be important to take that cost into consideration.

It is time to prepare for higher interest rates so say experts. Those on a tight budget should prepare, and those not wanting to pay more than necessary. 

As inflation continues to rise and remain above the Bank’s target 2.0% level more interest rate hikes will likely occur. The time to shop for a remortgage is now. Taking action to secure a low rate should have been done yesterday, but there is still time to make a positive impact financially and secure a safety net for the household budget against the hikes due to come in interest rates.