According to the latest forecasts from economists, inflation might have reached its peak. It has a long way to go until it is close to the Bank of England’s target level of 2.0%, but it is good news if they are right. Inflation and higher borrowing costs have been straining household budgets. One could question if inflation was being controlled by higher interest rates, then once it has indeed peaked should interest rates decline as fast as they grew, and the answer is not likely.

The Bank of England’s Monetary Policy Committee (MPC) began increasing the standard base interest rate in December 2021. Ten consecutive rate hikes later and the base rate sits at 4.0%. Before the rate hikes began, borrowing had almost been free as the MPC had voted for an all-time historic low rate of 0.1%. It was the nearest to zero in over 300 hundred years, but that is in the past.

Those holding loans on variable rates, such as homeowners, have been hit with higher rates and run the risk of facing further rate hikes. Even if inflation did indeed peak, there could be other rate hikes to keep it from growing and start it on a quicker path downward. The base rate has been forecasted to reach at least 4.5%. The next MPC meeting in March could see the rate held steady if the committee is confident in their previous actions or offer another increase to keep inflation under control, especially since there will not be a meeting in April.

Inflation was reported at possibly reaching its peak in October at 11.1%. It was the highest level seen in over 40 years. Where inflation is according to data for January will be announced on Wednesday. The information will be important. It could offer some relief from the fear of what might have been endured in the months ahead if it hasn’t indeed reached its peak and on a downward path.

The Bank of England has been optimistic in announcing that a rapid decline of inflation is to be expected if all economic factors remain as they are currently. 

Unfortunately, households are not likely to feel rapid relief from higher prices, except perhaps in the cost of gas. It will take less demand at higher prices for sellers to begin to return their pricing to a more normal expectation. However, supply lines are still tight, and sellers could remain out of control of offering relief to consumers any time soon.

Also, there is not likely to be any relief from higher interest rates. At least not from the MPC. Lenders could however begin to be more competitive and feel less risk in lending as a long running recession is held off. In turn, it could cause more attractive offers from lenders, especially in mortgage and remortgage lending. That might bring buyers back to the housing market and help homeowners keep their property values afloat.

The housing market is losing the attention of buyers. Not only are house prices higher than most could afford alongside inflation strains, but interest rates have made buying a house in 2023 much more expensive than in 2021 or 2022. With warnings of a recession, continued impact from inflation, high house prices, and higher interest rates with possibly higher ones to follow, the dream of being a homeowner is being pushed aside. 

Experts have warned homeowners to prepare for higher repayments. Those that secured a fixed rate during the historically low interest rate offers will eventually be coming to the end of their mortgage term. It is important the homeowner is prepared and knows when their term will end. Current offers are many interest rate points higher than what they would have been used to paying on and a new repayment amount could be eye popping for some.

There could even be homeowners that might find the new repayment level unaffordable and by preparing now stand a better chance of handling such a situation.

Once a homeowner is aware of when their term is due to end, it is suggested they start shopping for a remortgage as soon as possible. It is a misconception that a remortgage makes you owe more money in the long run. There are opportunities to borrow more with a remortgage and use the funds for upgrades or improvements to the property, or for much needed maintenance, but it isn’t a requirement. 

If the homeowner comes to the end of their term and they do not remortgage, the lender will move them to their standard variable rate (SVR). This is usually a rate higher than what could be found with a remortgage and therefore more expensive. It also subjects the homeowner to any further rate hikes, of which more could be expected.

Instead of paying more than necessary, a homeowner is encouraged to shop online for a remortgage and discover what savings over a SVR could be found. Choosing a fixed rate saves against further rate hikes in the future. It is easy to visit the website of a remortgage broker and obtain many quotes from a variety of lenders to review and compare. Brokers often have exclusive deals available, too. A homeowner can also go from one lender website to another to obtain quotes to review.

It is good news a long lasting recession might be avoided and that inflation is coming under control and may soon loosen its talons from household budgets, but higher interest rates in borrowing are here to stay for the time being. Homeowners are encouraged to prepare for higher repayments and if possible remortgage to secure a stable fixed rate to avoid paying future increases.