UK borrowers, including homeowners seeking remortgages and home buyers choosing a mortgage, are dealing with ups and downs in the lending market. This makes it even more important for borrowers, especially those borrowing substantial amounts as homeowners and home buyers would do, to shop for the best deal. Inflation, which was coming under control in the last half of 2024, has grown above target making the predictions of future borrowing uncertain. 

The current inflation rate in the UK stands at 2.6%, as reported for the twelve months to November 2024, and released in December. This marks an increase from 2.3% in October and 1.7% in September. The Bank of England's target inflation rate is 2.0%. The next inflation report, due for release on 15 January, will be the data for the twelve months to December. Considering holiday spending at the end of the year, the forecast is for the inflation rate to rise again when data is released next week. 

The report on inflation will have an impact on the Bank of England’s Monetary Policy Committee’s (MPC) decision during their first meeting of 2025 scheduled for 6 February. The current standard base interest rate is 4.75% following two cuts in 2024 from a sixteen-year high base rate of 5.25%. The second cut occurred in November 2024 and while there was hope of another rate cut in December and possibly in the first quarter of 2025, the expectation of a lower base rate was put to rest when recent reports revealed inflation was on the rise.

Borrowers often are unaware of how inflation impacts their ability to borrow at lower rates and save money. Just when a borrower is considering shopping the current lower rates, change can rapidly occur, and savings are lost, so by putting attention on inflation a borrower can better navigate borrowing to reach their saving goals. 

Inflation and interest rates are closely linked. When inflation rises, central banks, like the Bank of England, often respond by increasing interest rates to control spending as well as borrowing. Higher interest rates make borrowing more expensive, which can help slow down inflation. Conversely, when inflation is low, central banks may lower interest rates to stimulate borrowing and spending, which can help boost economic growth. This is why during the pandemic the MPC lowered the base rate to an historic low of almost zero at 0.1% to stimulate borrowing and spending, but as inflation began to grow and reached double digits the MPC voted to increase the base rate meeting after meeting starting in December 2021 until it reached 5.25% in August 2024.

The MPC is responsible for setting the base interest rate. In December of last year, the MPC decided to hold the rate steady at 4.75% despite the rising inflation, but there is always the possibility they could vote to increase the rate. There was not a meeting scheduled for January, so the next MPC meeting scheduled for February will have the committee relying heavily on the inflation report released next week. 

Lenders' responses to changes in the base interest rate can vary. While some lenders may adjust their mortgage and remortgage rates in line with the base rate, others may take a different approach. Factors such as competition, market conditions, and individual lender strategies can influence whether rates are increased, decreased, or held steady.

Currently, lenders are mixed in their approach to remortgage and mortgage rates. Some have pulled their lowest interest rates, while others have offered rate cuts. This mixed response makes it crucial for borrowers to shop around for the best rates, especially homeowners considering a remortgage as their current mortgage term nears coming to an end. Avoiding the standard variable rate (SVR) of their lender can help them secure a more favorable rate and save money in the long run.

When interest rates are unsteady, home buyers can step back from the market and await more favorable lending conditions. However, when homeowners are near the end of their current mortgage term, it is risky to wait for better rates. When a homeowner’s mortgage term expires, without a remortgage their lender will transition their loan to the lender’s standard variable rate or SVR. Avoiding a SVR is the smartest strategy as a SVR is considered risky due to the variable condition of the loan making it vulnerable to the lender’s decision to quickly change the rate. Also, a SVR could be double or more the rate of those found with a remortgage. To keep money in the household budget, experts encourage homeowners to choose a remortgage and avoid their lender’s SVR.

Shopping for a remortgage is easily done online as remortgage quotes can be obtained in a matter of minutes. Remortgage brokers are the quickest way to a number of quotes from a variety of lenders and possibly exclusive deals from lenders not offered directly to borrowers. Gathering quotes allows a homeowner to compare rates and determine the best deal available for their unique needs. 

Since most homeowners can switch with a remortgage up to six months before their term ends without a penalty fee for ending their deal early, it is never too early to shop for a remortgage deal. Also, it is certainly never too late to remortgage shop for those that have transitioned to their lender’s SVR as switching offers the opportunity to avoid spending more than necessary.

Remortgage shopping is encouraged sooner rather than later due to current economic conditions. The inflation rate in the UK is impacting interest rates and mortgage lending in various ways. While the MPC holds the base rate steady, lenders' responses can differ, making it essential for borrowers to stay informed and explore their options carefully and in uncertainty to act quickly.