The relaxed, opportunistic, no fear home buying and ownership of the past years has faded with the new economic environment. Now warnings abound of financial hardships in the coming months for hundreds of thousands of homeowners. This is especially true for newer homeowners that have yet to have their first mortgage term end. Not only could they be facing affordability issues, but they could also become a prisoner to their mortgage.

The growth of inflation required the Bank of England’s Monetary Policy Committee (MPC) to begin increasing the standard base interest rate. In December 2021, the pandemic caused almost zero-base rate was first increased. Including that meeting, the last nine consecutive MPC meetings have resulted in a rate hike. The rate rose in one year from 0.1% to 3.5% by December 2022.

When interest rates increase, the cost of borrowing is more expensive. For homeowners with loans that are typically of high amounts, costs can mount quickly to put extreme pressure on a household budget. Those with variable rates could be subject to continued increases with no relief in sight. Depending on the forecasted level interest rate to only rise to 4.8% is risky business. The forecast could be better than expected or much worse. No one knows what event is around the corner that could cause interest rates to shoot farther upward or possibly down.

There are homeowners that mortgaged their new home during the pandemic caused low base rate of the Bank that benefitted from obtaining an historic low offer from a lender. Some could have obtained mortgage interest rates from their lender at 2% or lower. Coming to the end of their term will be a shock to find current interest rate offers are double, or sometimes triple the rate they were previously paying. 

According to the Financial Conduct Authority (FCA) there are over 750,000 at risk of defaulting within the next two years and 47,000 homeowners at risk of becoming a prisoner to their mortgage. Being prisoner to a mortgage means they are trapped in a rate they cannot escape. They could be unable to remortgage to obtain a new rate due to negative equity which is when their home value declines below the level of debt in the mortgage. There are also homeowners that will be out of reach of a remortgage due to lending criteria rules.

In a report from the FCA, it was estimated 200,000 homeowners had already fallen behind in their mortgage repayments since June. 

Household budgets are dealing with higher interest rates, growing inflation, higher energy costs, and wage growth that is lower than the rate of inflation, which now stands at 10.7%. There are some households still recovering from the hardships endured during the pandemic. Therefore, finding savings is an important strategy. 

Homeowners usually have larger debt with mortgages, so finding savings with their lending is a focus encouraged by experts. They ask homeowners to consider shopping for a remortgage. Those that come to the end of their term could remortgage or they will be moved to their lender’s risky standard variable rate (SVR). The SVR is more likely to be higher than what could be found with a remortgage and it is subject to increases as the MPC votes rate hikes.

In choosing a fixed rate remortgage, a homeowner would likely find a lower rate than with a SVR to save money and would save even more by being shielded from any further rate hikes. The opportunity to remortgage at current rates has been an attractive strategy for some homeowners as they have made the choice to accept a penalty fee to end their term early to allow remortgaging now rather than when rate offerings could be higher later when their term would have ended.

It is easy to discover if and how a remortgage might help by shopping online. Visiting the website of a remortgage lender could offer a quick quote. Visiting other lenders would offer quotes to compare. The homeowner could also visit a remortgage broker and be offered numerous quotes from a variety of lenders in a one stop shopping experience and have quotes to compare quickly and easily.

The financial woes forecasted for the coming year and next are difficult to consider. However, with preparation and taking opportunities to find savings and shielding from further strains on the household budget, it could be less difficult. For homeowners, a remortgage might be a tool in which to set up for a win rather than only losses for the household budget in 2023.