According to the most recent data from Nationwide, house prices are up 1.5% in comparison to the same time last year. Continued high prices in the housing market and high interest rates have made it difficult for home buyers. Affordability is an issue for those hoping to climb on the property ladder, and despite there being hope for the Bank of England’s Monetary Policy Committee (MPC) to cut the standard base interest rate, it will not likely open an easier path to homeownership. The ability to afford a home in the UK has become more difficult, even though the economy has survived double digit inflation to finally reach target of 2.0%, interest rates are not expected to increase but begin decreasing, and wages have grown.

The pandemic may have lessened its impact on our everyday lives, but it left a long-term impact on the housing market. It was when the economy began to suffer under the restrictions of lockdowns and the fears of an unknown global virus that the MPC lowered the base interest rate to almost zero at 0.1%. It was in March 2020, the rate reached its historic low and the last time a cut to the base rate occurred. 

Borrowing had never been cheaper and home buyers flooded the housing market and took advantage of the ability to borrow and afford homes that would not have been possible previously. As demand grew and supply lowered, house prices climbed and though interest rates eventually increased, demand remained, and house prices stayed high as well.

The historically low base rate remained at 0.1% until the end of 2021, when in December 2021 the MPC voted to increase the rate to fight inflation to 0.25%. Every meeting afterwards until September 2023 resulted in a rate hike. Now that same 5.25% base rate level remains. 

The lender rates offered now are much more expensive for borrowers. Not only have higher interest rates made it difficult to become a homeowner, but it has also made it difficult to remain a homeowner. Affordability is not only an issue for home buyers, as homeowners have come to the end of their mortgage term gained when rates were historically low, and facing the new higher cost of borrowing has put many homeowners into a corner. 

Those homeowners unable to afford the new repayment amounts have either remortgaged to avoid the higher interest rates of being moved to their lender’s standard variable rate (SVR), lengthened the life of their loan to extend it out to lower monthly payments, or they have fallen behind on their payments. The difference in borrowing in 2021 and now is vastly different, even borrowing in 2022 would have been much cheaper than it was only weeks ago.

Homeowners and home buyers have stepped into rates that cannot be escaped if one wants to become a homeowner or remain one.

Nationwide revealed the average house price is £266,064. They also reported mortgage transactions are down almost 25% over the past year. Their figures do not include cash deals, which account for about a third of their housing sales, nor buy to let deals. The data only accounts for the building society’s own mortgage lending. Fewer transactions could mean home buyers are being priced out by the current market, cannot afford to purchase with current interest rates, or they are stepping back from the uncertainty of if or when the MPC will vote for a base rate cut, but lenders are not waiting on the MPC.

There is slight relief in the lower interest rates available now in comparison to weeks ago or even last week. Lenders are optimistic a rate cut is near and that it could be as soon as August. In anticipation of the MPC’s vote in the next meeting, rates have been declining as forecasts call for a possible 0.25% cut to the rate, bringing it down from a sixteen year high to 5.0%.

Moneyfacts reported the average rate on a two-year fixed mortgage is 5.95% and a five-year fixed rate is 5.53%. 

The Bank of England reported nearly three million homeowners will have their mortgage payments increase over the next two years as their current mortgage terms end. The majority of homeowners who benefitted from pandemic impacted interest rates when they acquired their current deal will have reached the expiration of their terms by the end of 2026. Monthly mortgage repayments could increase for homeowners by 28%.

The reality is that while rates are much higher than they were during the pandemic, current rates are far lower than they were in 1991 when the base rate was 14.88% or in 1979 when it reached 17%. 

Home buyers should be aware that the term they pick now is important. Rates rise and fall as they are reflective of the economic conditions at the time. When rates were at their historic low, it could have been the first time a borrower even cared about interest rates and might have been unaware of how quickly they can rise and change affordability. Choosing a longer fixed term in 2021 would have been a smart strategy, but few might have considered that by 2023 the rate would rise to a sixteen year high.

Remortgaging is a tool for homeowners to make new strategies for the years ahead. While rates now might be declining as the MPC nears a possible rate cut at their next meeting in August, it should not be overlooked that lenders are already cutting their offers before the MPC votes. 

Lower rates than those found now might not offer much more savings, if any. However, no one knows for certain August will bring a rate cut, for all things must remain unchanged for the consideration. Things can and do change quickly, and the rate cut hoped for in August was the same one hoped for in the first months of the year. The first-rate cut could also come in September versus August.

Remortgaging and avoiding a SVR is an important choice in the ability to save money, but remortgaging also offers the ability to choose a fixed rate for the years ahead, and perhaps a longer term than originally chosen. For no one can know for sure what rates will be in two or five years ahead. What is important now is the current rates and remortgaging opportunities. It is never too early to shop online for a remortgage to determine what offers are available whether it is needed now, or a homeowner is preparing for the future.