Next week the newest inflation report will be released. That will be on 20 March, and the following day will be the Bank of England’s Monetary Policy Committee (MPC) meeting. The target rate set by the Bank for inflation is 2.0% and the current rate is double that at 4.0%. This time last year, inflation was in double digits, so while the inflation rate is double target it is moving in the right direction, or at least it was for a while. In November, inflation had dropped to 3.9%, but increased to 4.0% in December and remained the same in January. The March report is expected to show a decline in February to 3.6% according to a poll of economists by Reuters.

As inflation declines toward the 2.0% target, the MPC is more likely to cut the current standard base rate of 5.25%. The first cut to the base rate since the pandemic impacted the economy is expected in the first half of the year as inflation reaches target for the first time in three years. 

The cut will likely be a small and testing cut rate rather than a deep one. Experts believe the first one will be 0.25% or 0.50% and the MPC will determine if further rate cuts are possible as inflation reacts to the new rate for their expectation is for inflation to reach target in the first half of the year and rise again by the end of 2024.

The last base rate cut was in March 2020 when the pandemic was shutting down the economy and causing lock downs. The base rate reached an all-time historically low level of 0.1%. The Bank’s rate remained at a record low until December 2021 when the MPC began their fight with inflation and increased the rate by more than double to 0.25%. 

The rate remained until the first meeting of 2022 in February when it was doubled to 0.50%. In March 2022, the rate was increased to 0.75%. The rate hike in December 2021 became the first of fourteen consecutive MPC meetings resulting in an increase. It has held steady since September 2023 at 5.25%.

In March 2022, mortgages and remortgages were not as low as they were in 2021, but as rates were on the move upward, home buyers and homeowners took advantage of offers with warnings of rates rising further. For borrowers that obtained their two-year fixed deals in 2022, those will end and offers now are vastly different and more expensive. The difference in repayments could be substantial and home buyers could be shut out and homeowners could face affordability issues.

There is no doubt that a rate cut is going to help borrowers. However, it should be noted that economists are not expecting the rate to return to be levels of 2022. Borrowers should make decisions to secure their financial position with a realistic view and not hold out hoping for a return to historically low levels. 

This warning is especially directed toward homeowners. Holding out for a large drop in lender rates is not worth the risk of putting off a remortgage and allowing a transition to a SVR.

When a homeowner’s mortgage term ends and they disregard the opportunity to remortgage, they are moved to their lender’s standard variable rate (SVR) which is risky. It is not a fixed rate nor is it the lowest interest rate on the market. Only with a remortgage could a homeowner lock in with a fixed rate and avoid rising rates should they occur during the term of their new deal. Also, a remortgage could offer substantially lower rates than a SVR, which at times has been double or more the average remortgage rate available.

Home buyers can avoid higher interest rates and sit out of the market waiting for a more favorable lending opportunity. However, homeowners could become prisoner to their mortgage, especially with a SVR. They could become stuck paying more than necessary as they rush to remortgage and perhaps miss out on a new deal due to the financial strains the SVR caused. 

There are many reasons homeowner could be stopped from obtaining a remortgage which could likely save them money over a SVR and obtain peace of mind with a fixed rate if their budget is better suited to a locked in repayment amount over fluctuating repayments.

Homeowners are normally allowed to choose a remortgage within six months of their term expiring without any penalty fee. Knowing what offers are available is easy by shopping for a remortgage online. Visiting the website of a remortgage broker could offer exclusive deals not found from lender to borrower and brokers could offer numerous remortgage quotes from a variety of lenders. Homeowners could also gather quotes by going from one remortgage lender to another.

It is good news the Bank and experts are forecasting a target level inflation rate soon which would signal an upcoming base rate cut by the MPC. However, the relief from a target level inflation will not be felt overnight by consumers. It might be some time before budgets are less squeezed. Also, lender rates will become more attractive, but perhaps not to the level hoped for by those coming to the end of their two-year fixed rate terms. There are savings though by avoiding a SVR, and a remortgage is the opportunity not to be missed.