Homeowners are likely to experience shock when it comes time to remortgage. When their mortgage term ends, there is the choice to remortgage or allow their lender to move their loan to the lender’s standard variable rate or SVR. The SVR is considered a risky choice for households that do not have budgets capable of handling frequent changes to the interest rate. This is especially so when interest rates are being increased such as has already happened four times this year already. The shock will come when the homeowner reviews current interest rate offers. 

The Bank of England’s Monetary Policy Committee (MPC) has increased the standard base rate during each of the last five consecutive meetings, one in December 2021 and four this year. The rate has risen from the over 300 plus years historic low of 0.1% to the current 1.25%. This is a rate that has not been seen in over a decade. A large number of homeowners will have never seen nor paid on an interest rate this high, and many will not be prepared financially to do so.

It should be noted that it has been reported despite the higher interest rates offered, a remortgage could offer an interest rate half the level associated with a SVR or perhaps even a greater savings. Therefore, experts encourage all homeowners to shop for a remortgage to determine the opportunities and benefits available. Because shopping for a remortgage can be done online, it is fast and easy to get quotes in hand to review and take action. 

It is not surprising that the majority of homeowners are choosing a fixed rate remortgage. Locking in an interest rate now could offer savings over accepting to pay on the offered interest rates of the future. 

Inflation is expected to reach 11% this year and to control its growth the MPC will likely need to increase the standard base rate many times. However, to make a major impact, the decision could be made to increase the rate at higher increments. The MPC meetings this year have all seen increases of 0.25%, but some members would have liked to have increased the rate by double that or 0.50%. 

The next meeting of the MPC is in August and another increase is likely. The forecast of more increases has some homeowners choosing to pay penalty fees to end their mortgage early to allow them to choose from remortgage offers now rather than paying on a higher interest rate in the future when their mortgage would have originally ended.

According to a recent report from UK Finance, there are 1.3 million mortgages that will have their fixed rate mortgage deal end this year. Their interest rate offer choices will likely be much higher than the rate they were paying originally. It is estimated that homeowners could see their disposable income drop by more than 25% due to the higher cost interest rates along with the impact of inflation.

Not remortgaging could bring on an even higher deduction from a household budget should the SVR have a higher interest rate and continue to climb throughout the economic hardships brought about by inflation, the pandemic, and the war in Ukraine.

As previously mentioned, experts are encouraging all homeowners to shop online for quick and easy access to quotes. Either by visiting lender websites or a remortgage broker for quotes from numerous lenders at one site, a homeowner could discover what opportunities are available and begin to build safeguards into their household budgets.