Homeowners seeking remortgages are helping to push up the activity in the mortgage lending market. This could be surprising due to the fact that there had been more opportunities to find lower rates in mortgage lending than in remortgages. While it is expected that homeowners would be avoiding their lender’s standard variable rate (SVR) in favor of a lower interest rate remortgage, with mortgage offers for home buyers under the standard base interest rate it would be expected that there would be a mortgage lending boom. The issue might have been that the lowest interest rate offers were reserved for home buyers able to qualify with large deposits, and credit histories with few flaws, if any.

Most home buyers were out of reach of the lowest interest rates, and therefore facing higher rates and elevated house prices. Meanwhile, buyers must save for deposits while dealing with inflation. It was this time last year that inflation was in double digits, and certainly few will have saved for a deposit in only months as it declined at the end of last year. It is estimated that the average first-time home buyer now requires £50,000 for a deposit and the average time to save is ten years.

The lending market will likely continue to be uplifted by homeowners rather than home buyers. The competitive lending market that emerged in January is rapidly disappearing. Lenders are pulling their lowest mortgage rate offers as inflation has become stubborn at 4.0% for the last three months. The impact on the housing market could show up as quickly as lenders pulled their rates.

First-time home buyers have found it challenging to stay in the market, much more than they had in the last two years when house prices were breaking record highs month after month. Despite the higher asking prices, borrowing was cheap and so much so that buying was more affordable than now.

In December of 2021, the Bank of England’s Monetary Policy Committee (MPC) held the first of fourteen consecutive meetings that resulted in a standard base interest rate increase. The first rate hike took the base rate from almost zero at 0.1% to 0.25% and that rate held throughout January 2022 due to there not being a scheduled meeting. The first meeting of 2022 was in February and the rate was doubled to 0.50%. 

In two years, the rate has climbed from 0.50% to the current rate of 5.25%. 

Unfortunately, homeowners securing their two-year fixed rate mortgage in February 2022 will have their mortgage term end and will either choose a remortgage or be moved to their lender’s risky SVR which could be double or more the rate available with a remortgage deal. The same will occur for terms ending throughout all of 2024, the change in repayments could be substantial due to the vast difference in the initial mortgage rate and choices now.

There are many homeowners facing missed repayments because of affordability issues brought about by higher interest rates. The danger is so great, there are experts calling for the MPC to vote for a cut to the current base rate despite inflation resting at double the target rate of 2.0%. The concern is what will happen to the economy should the number of homeowners facing falling behind in their repayments or worse, losing their home, rather than inflation remaining a hardship longer.

The lack of buyers, especially first-time home buyers in the housing market, could signal yet another difficulty for homeowners. When buyers step back from the market, house prices decline due to a lack of demand, and lower house prices can cause a decline in property values. Homeowners that experience a fall in their property value could end up in negative equity. 

Negative equity, which occurs when the property value is below the debt on the property, will keep a homeowner from being able to remortgage. The lender would be offering a loan for more than the property is worth, and such a risk would be declined. During negative equity, the homeowner will be at the mercy of their current mortgage situation. 

The greatest financial difficulty would likely be experienced by the homeowners coming to the end of their mortgage term. Without the ability to remortgage, they would be moved to the lender’s SVR which would likely be more expensive. It is also considered risky due to it being variable and not fixed. If rates are increased due to stubborn inflation, then the SVR could get even more expensive for a homeowner already struggling with the financial burden of the current interest rate.

The risk to homeowners as changes occur in the lending and housing market is enough to make experts push aside the usual perception of inflation being the greater enemy to the economy. Instead, some feel the burden to homeowners could undermine progress and would rather deal with inflation longer than see a large number of mortgage loans fail.

The strategy to survive the uncertainty could be remortgage shopping. It is fast and easy to do online. Visiting a remortgage broker could put numerous quotes in hand from a variety of lenders in only minutes. Brokers could also have exclusive deals not offered directly to borrowers. Homeowners could also shop from lender to lender to gather quotes.

Since most homeowners are capable of remortgaging six months prior to the expiration of their term without a penalty fee for ending their term early, some will choose to do so rather than face higher rates later on or to simply get a fixed rate deal prior to a decline in property values. 

There are many scenarios that could evolve in the months ahead for the economy that could impact home buyers and homeowners. Waiting to see what comes about might not be the best choice, while planning for a safety net with remortgaging is simple and could offer peace of mind. This is why experts are encouraging all homeowners to shop for a remortgage. It could be the smartest and best few minutes spent this weekend.