Despite rising interest rates, there is some good news for homeowners. Some lenders have reduced their interest rate offers. When the mini budget was announced in late September the markets reacted, including the lending market. Lenders raised interest rates in reaction and pulled their lowest offers. It left hopeful home buyers facing paying more and some facing affordability issues to the point of pulling out of purchasing deals. Homeowners with variable rates faced higher repayments and those that sought remortgages saw the best offers disappear overnight.

There has been some correction to the quick reaction to the mini budget. Lenders have returned to a slightly more competitive mode and have lowered the interest rate of their offerings. In some cases, lenders have dropped their interest rates with mortgages and remortgages by a point or more.

This is good news for those looking to make the most of savings rather than face further strains to their household budgets. However, while lenders may be offering lower interest rate deals currently, the Bank of England’s Monetary Policy Committee (MPC) is due to issue another hike to the standard base interest rate. Lenders will soon follow and the rates available now will disappear, and not likely to return if the economic conditions of now, including growing inflation, remain the same.

The current standard base rate is at 3.0%. In December 2021, the rate sat at an all time low of 0.1%, almost zero. The MPC voted to increase the rate to 0.25% in response to the growing inflation rate. These increases continued at every MPC meeting afterwards. The last eight consecutive MPC meetings have resulted in an increase. The next meeting is in a few days and another increase is likely. Experts believe the year will end with the base rate at 3.50%. 

The first MPC meeting in 2023 is scheduled for February and again, another rate hike is possible. Inflation is not expected to be controlled until the base rate reaches 5.0% or higher.

There are tens of thousands of homeowners that are that are coming to the end of their term. They could be deals that were obtained when interest rate offers were at historic lows from their lender. At the end of their fixed rate deals homeowners will be without the safety net they previously had in place to save them from rate increases.

When a homeowner’s term ends, they can either remortgage or allow their lender to move their loan to the lender’s standard variable rate (SVR). The key word is variable, meaning the rate will change. It will rise with increases by the MPC or even due to perhaps the lender’s reaction to global lending issues. If rates were declining, it would be less risky to be moved to a SVR since the homeowner might experience several declines and possibly beyond the lowest remortgage interest rate offer at the point they were shopping for a deal. However, remortgage rate offers are typically lower than a SVR, and there are types of remortgage loans that could be chosen that would allow a homeowner to experience declining rates such as a tracker loan.

Currently rates are rising and are due to rise further, a SVR is risky. It relates to choosing to walk into a retailer and offering to pay for a product at the highest price possible and ignoring any offers that could save money. No one should want to pay more than necessary, and especially when the interest rate is based on a such a high value debt such as a property loan. If there are savings available, then by all means seek it.

Rather than accept a SVR, homeowners could choose to shop for a remortgage deal. It is quick and easy to do online. One visit to a remortgage lender website could put a quote in hand to review in a matter of minutes. Even easier is visiting a remortgage broker and getting numerous quotes from a variety of lenders to review and compare to find the best remortgage offer. A remortgage broker could also have exclusive deals not available directly from the lender. 

With a remortgage, a homeowner is likely to obtain a lower interest rate than with a SVR. A fixed rate remortgage locks in the interest rate for the new term. It offers a shield from paying more should rates be increased further by the MPC. 

There are a lot of strains on household budgets, including inflation, higher energy costs, and in some cases, many are still in recovery mode from the impact of the pandemic. Paying more due to rising interest rates is not easy to put on an already strained budget. Unfortunately, cheap interest rates from this time last year are gone, but it doesn’t mean there aren’t savings to be found. Only weeks ago, the current rates were out of reach due to the mini-budget issue. 

Things have calmed slightly but is only the calm before the storm. The MPC is meeting on 15 December. Another increase is more likely than not, and then another rate hike is possible in February. Homeowners have an opportunity in remortgaging that should not be overlooked. How much of an opportunity could be found in minutes online. Remortgage shopping should be as much of a priority as holiday shopping. It could be the strategy that offers the gift of peace of mind in 2023 if savings are found and secured despite the decisions of the MPC in the new year.