Homeowners feeling they are standing on thinning ice as the housing market begins to show signs of slowing will not find comfort in the latest forecast by Deutsche Bank. The investment bank expects house prices to decline by 3% to 3.5% by the end of year before the market stabilizes. The fall in demand is not considered a crash of the market, but a correction. 

House prices boomed during the pandemic with increases reaching new levels continuously due to high demand brought on by cheap borrowing. The Bank of England’s Monetary Policy Committee (MPC) had lowered the standard base interest rate to almost zero at 0.1% and lenders offered historically low interest rates to borrowers. Cheap borrowing helped home buyers get into larger properties and many first-time buyers skipped over the usual starter homes for upgrades from the start.

Unfortunately, there are two major factors at play now that could cause affordability issues for those same buyers that became homeowners when rates were at record lows. The first issue is that at the end of a homeowner’s mortgage term, the homeowner will lose their current interest rate. It will expire and they will have the choice of a remortgage or to allow the lender to move them to their standard variable rate (SVR).

The SVR is usually a higher rate than what could be found with a remortgage, so avoiding a SVR could save a substantial amount of money. Also, by choosing a remortgage, the homeowner could secure their rate and shield against further increases by the MPC with a fixed rate deal.

A remortgage could be a tool in helping a homeowner deal with the changes due to higher interest rates. Without a remortgage, the homeowner could be moved to a SVR, face rising rates, and be paying all along more than necessary.

The second factor at play that could cause affordability issues is the change in the housing market. If the housing market cools off, so could property values. It isn’t likely there will be a big crash according to experts, but property values could decline enough to harm the efforts of homeowners to save money with a remortgage.

An important part of qualifying for a mortgage or a remortgage is the loan to value ratio or LTV. The lower the loan in comparison to the value of the property, the lower the risk for lenders in lending and the better the offer is for the borrower. It is why a bigger deposit can be helpful in qualifying not only for buying a property, but also bring more affordable rates in reach of the borrower.

Going back to falling property values, a homeowner that experiences a decline in property value could find they have slipped into negative equity. Their mortgage debt is higher than their property value. When a homeowner is in negative equity, they are out of reach of a remortgage until they are back in positive equity. The way this could occur is by property values increasing due to demand in the housing market, upgrading and improving the property to bring up the value, or by paying down debt to increase the equity level.

A homeowner coming to the end of their mortgage term who is also in negative equity will be unable to take advantage of remortgage opportunities, which is the ability to save money among other things. They will be unable to obtain a fixed rate, which means they will be subject to further rate hikes. More importantly, they will be stuck on a SVR and paying more than they would with a remortgage. Unable to escape the SVR, costs will be higher, and affordability could become an issue.

The reality is that interest rates matter to homeowners seeking a remortgage, and so does the performance of the housing market. It is why the forecasts concerning the housing market are being connected to homeowners, especially those that could lose out on the ability to remortgage if the housing market performs differently than it has.

For those that have come to the end of their mortgage term and were moved to a SVR, those nearing the end, and even those not close to the end, shopping for a remortgage should be a consideration. The housing market could show resilience as it has before, it could have the slight correction needed, or it could experience a deeper dip than expected due to higher interest rates and a lack of supply.

Shopping online for a remortgage can be quick and easy. In doing so, a homeowner could discover the opportunity for saving money. Doing so before interest rates rise further, or before a change in the housing market occurs could be advantageous for many homeowners. Therefore, a few moments online shopping for a new deal could be the first step in finding an important savings opportunity that could make all the difference in keeping a property affordable for the homeowner.