Inflation is falling but will be with us until 2025, interest rates are rising and will continue to do so till inflation is near target, but perhaps the newest threat to household budgets is that house prices could begin to decline and pull the one opportunity to save money from the grasp of homeowners. As the housing market experiences a lack of demand and house prices begin to drop, so do the values of properties. Despite a homeowner residing in their home and paying their monthly repayments, the value of the home matters, even if there is no intent in the near future to sell the property.

Homeowners have mortgages and with those mortgages there are set terms for how long the chosen deal will last and when it will expire. At the point the term ends, the homeowner could choose to remortgage, or they could allow the lender to move them to their standard variable rate (SVR). So, for instance, a homeowner that chose a two-year fixed rate mortgage that is nearing the end this year has changes in store for their household budget.

The homeowner will come to the end of their current term and lose their current interest rate. Two years ago, when interest rates were historically low, the rate chosen could have been a large part of making the purchase of the home affordable. At the end of the term, the historically low rate will be gone, and the homeowner will face current rate choices. 

There may not be historically low rates to choose from, but a remortgage is most likely the smartest strategy. A SVR could be double or more the rates offered with remortgages. Also, a remortgage offers the choice of a fixed rate, which would shelter the homeowner from further rate increases. 

In comparing the possible savings of choosing a remortgage over a SVR, the amount of savings could be substantial. 

There are factors involved that determine what remortgages are offered to a homeowner. One factor is the loan to value of a property, or the LTV. The greater the value of the property in relation to the amount of debt in the loan, the better. It lowers the risk the lender is taking to provide the loan. Due to the lower risk involved, the homeowner could be offered a better deal, better incentives, and lower interest rates than an offer for a deal with a higher LTV level.

Unfortunately, when property values decline, newer homeowners that have yet to build up equity by paying down debt, could find themselves in negative equity. In the past few years, property values have shot up and added to the equity level of homeowners. The values in some cases have gone up in only a few years by amounts not seen over the course of five or ten years previously. It has allowed homeowners to confidently seek out remortgaging with strong LTV levels. 

Should negative equity occur, where the value declines below the amount of debt, a remortgage is out of reach. The homeowner is stuck with paying on a SVR and likely paying much more than necessary.

This locked into situation in which there is no choice but to face the higher interest rates of a SVR is considered being prisoner to one’s mortgage. 

The only hope is for equity to rise due to increased property values, or for the homeowner to pay the lender the amount needed, much like the initial deposit, to bring the LTV into a range to allow a remortgage to escape the higher interest rates of a SVR.

The housing market is expected to see a drop in demand as higher interest rates shut out first-time buyers and makes affordability an issue not seen in years. However, the housing market has proven to be resilient many times when experts forecasted gloom and doom for sellers, homeowners, and the economy. It not only survived the global pandemic, but thrived, which was totally unexpected.

However, it was then that interest rates reached historically low levels. Perhaps the government will intervene if needed and keep home buyers in the market. Perhaps builders will offer their own schemes to keep first-time buyers’ hopes alive.

The housing market matters to the economy and it will be watched closely. Home sellers, landlords, and home buyers will all have attention focused on it, but so should homeowners.

Those that could slip into negative equity may want to consider a remortgage sooner rather than later or miss out on the opportunity to secure a new deal. Taking on a penalty fee to remortgage early could be a smart choice for some homeowners but should not be done without much consideration. Those close to having their mortgage term end should reacquaint themselves with their deal and perhaps they have already entered the grace period prior to the expiration date which would allow them to remortgage without a penalty fee.

Shopping online for a remortgage will help a homeowner determine what offers are available and what savings could be found versus a SVR or waiting until their term ends when rates could be higher. Experts suggest all homeowners shop for a new deal as it is fast and easy to do and offers such valuable information.

Remortgage brokers could offer not only numerous quotes from a variety of lenders, but also exclusive deals not offered directly from lenders to borrowers. Of course, visiting the website of remortgage lenders from one to another allows the homeowner to gather quotes to review and compare. 

The housing market may be on the verge of seeing a cool down not experienced in years, or it might not. It is a risk that some homeowners should avoid if financial security and peace of mind are important, for saving money versus paying more than necessary could be as simple as choosing a remortgage now.