The next meeting of the Bank of England’s Monetary Policy Committee (MPC) is looming and only weeks away. There was not a meeting in April, which gave some relief to those worried about further rate hikes of which there is a strong expectation it could be soon. The MPC has increased the standard base interest rate at each of the last eleven consecutive meetings. Starting in December 2021 when the rate increased from almost zero at 0.1% to 0.25% through to March 2023 when the rate increased to 4.25%. With inflation still in double digits, the MPC could hike the rate for the twelfth time on 11 May.

Rather than face higher interest rates, of which experts differ on what the peak interest rate will be when the MPC feels comfortable inflation is heading toward the Bank’s target of 2.0%, homeowners are seeking remortgages.

In shopping for a remortgage, the needs of homeowners have been varied. Some are choosing to cash out built up equity to put cash into hand to better weather the difficult economic conditions. Others are taking out more on their loan, while some are seeking to escape higher interest rates. There are those that have the priority to choose a fixed rate deal to shield against further rate hikes and for the added assurance to their budgets are choosing long-term fixed rate deals over the usually popular two-year fixed rate remortgages.

There are also those homeowners choosing to take on a penalty fee to end their mortgage term early to allow them to remortgage with current rates rather than wait out their term and possibly face higher rates and therefore higher repayments. An early repayment charge (ERC) is seen as simply a minor cost to secure their financial security and put into place a strategy to shield against higher interest rates.

Demand for remortgages has outgrown that of home purchase mortgages. In just over a year, interest rates have increased to the highest level in over a decade. This means there are tens of thousands that have never had to pay interest rates at such a high level and the rate grew quickly. Preparing to pay hundreds of pounds more per month is not a simple task for budgets already tightened by the global pandemic, inflation, and higher energy costs.

There are many homeowners that will be fully unaware as to the change in their repayments that will occur at the end of their mortgage term. There was a housing market boom just two years ago and many distinct buying seasons two years ago such as when the discounted stamp duty was coming to an end. Two-year fixed mortgages were popular, and time has passed to now put those homeowners that so far have been shielded from rising interest rates to the end of their mortgage term and facing a new financial reality unlike they could have imagined occurring so soon.

When a mortgage term expires, the homeowner can choose to remortgage or allow their lender to move them to their standard variable rate (SVR). A remortgage will normally be connected to the lower interest rates versus that of a SVR. A remortgage also allows a fixed rate deal while a SVR remains variable and is subject to increases and therefore higher borrowing costs.

This is why some homeowners have chosen to remortgage early and why experts are encouraging all homeowners to shop around and discover what savings could be found rather than stay on a SVR or to be ready to take action to remortgage as soon as possible when a mortgage term nears its end.

Remortgage shopping is simple online. Visiting the website of a remortgage broker could quickly put numerous quotes from a variety of lenders into a homeowner’s hand to review and compare. Brokers could also have exclusive lender deals not offered directly from the lender to borrowers. Of course, going website to website of remortgage lenders is also possible to gather quotes to compare.

Remortgaging is encouraged as it is a tool for homeowners to help their budgets. Interest rates will not be available at historic low levels as they were two years ago, but savings could be found by avoiding a lender’s SVR and securing a fixed rate deal rather than taking on higher repayments with rate hikes.

According to LMS, remortgages increased by 28% in March, although as usual at the end of a quarter, completions fell and in March by 7%. Of those that borrowed, 41% increased their loan size, and 53% chose a five-year fixed rate deal.

Nick Chadbourne, CEO of LMS, remarked, “Although both completions are down and cancellations are up, this was expected. It is typical to see completions drop in the last month of a quarter as the next ERC spike looms and cancellations rising was simply due to the fact that borrowers who secured offers when rates were high continue to shop around for a more competitive deal.

“As the year progresses, we know that 2023 has a raft of product expiries that will culminate in the highest ERC spike for five years at the end of Q4. This will be somewhat offset by an increasing number of people looking for product transfers thanks to lessening affordability, but nevertheless we can expect a big build in instructions and pipelines as the year goes on. April will see the start of this, and we expect instructions to rise after the usual Easter dip.

“More generally, while products remain competitive, inflation also remains high so it’s normal to expect the Bank of England to raise the base rate over the summer. It’s not a given that this will impact mortgage products, but it will drive anyone with trackers or those on SVRs to change products and increase the pipeline further.”