Nobody would want to make an investment and then watch it decline. This is certainly true for homeowners. Many would say they would like to see their home increase in value so that some day they could sell it and have profit in hand to purchase a bigger home, or perhaps downgrade and use the funds to retire. The most expensive purchase most people will ever make is with their home. It is supposed to be an investment. There is always supposed to be demand to keep the value climbing and the investment solid. However, a global pandemic thrown into the mix can have unforeseen consequences for those that invested in property with the hope of watching their investment work for them.

Unless an unforeseen event causes a shift in the housing market, it remains very much the same year after year. A first time home buyer invests into an affordable house. Sometimes it is a new starter home, sometimes it is a home that is older but has good bones and some sweat equity will have it looking like the perfect dream home. No matter the condition to start or the need for upgrades and improvements, a home buyer either sees this as their forever home or the stepping stone to more financial security in the years to come.

A home can grow in worth and provide funds decades later for a couple to enjoy their senior years. No longer in need of the house that was important for growing children, they can downgrade and take the profits and use them to enjoy the rest of their active lives together. Perhaps travel. Maybe move to a holiday destination where family can visit and build memories. 

There are those that buy their first home and see it as the means to jumping years ahead financially. They buy an affordable house that needs some loving care. They put every available extra hour into fixing it up as fast as possible. They build skills and knowledge along the way. Eventually the house has transformed and with it the value. They sell the home, make a profit and invest in another fixer upper and repeat the process moving ever closer to more money in the bank and the size and location of their dream home.

Buying a home is never done with the expectation that in a short time the homeowner will own debt on the property that exceeds the home’s value. It’s almost like throwing money away. It is the equivalent of walking into a shop, choosing an item, and deciding to pay more for the item than what it is worth.

In the days of the pandemic lockdowns, something extraordinary and unexpected happened. People were not happy about being isolated in their homes, but no one could have predicted they would choose to escape them completely by buying a new place to live. 

The need of more space inside the home during the pandemic was overwhelming to many. Privacy and a quiet space were essential to at home workers. Children would need a place to learn and study without distractions. The space that was once efficient and acceptable was now suffocating as the walls pushed inward with no room for entertaining, cooking, working, studying, working out, or finding quiet time. 

The frenzy in the housing market was dubbed The Race for Space. There was a race to purchase more room inside the house as well as outside. A home with a garden, especially for children’s play and pets was highly desired. Demand grew and even places that had been ignored for decades became hotspots in the purchasing market. The pandemic that closed down restaurants, services, and businesses created ghost towns while the countryside shined brightly for those weary of the pandemic lifestyle.

Demand pushed asking prices ever upward. Month after month the average house price grew. In the past it would have shut out hopeful home buyers, but with record low interest rates what was once thought unattainable was within reach. 

Home buyers moved from 2 bedroom flats to 6 bedroom homes with plenty of land for children to roam and play. Even those not originally in the market for purchasing heard of the amazing new life of friends and family and decided they would also take the leap and take advantage of the opportunities available.

The Bank of England’s Monetary Policy Committee (MPC) had for the benefit of the UK economy cut the standard base interest rate to an all-time historic low. Never in over 300 years had the base rate been lower. At almost zero, the rate at 0.1% was too good to overlook. Borrowing had never been cheaper. 

Rather than warnings that this was not likely to remain, that things would some day go back to normal including interest rates, the pandemic remained and there were talks of the rate reaching zero. Home buyers were giddy at the prospects in front of them as well as were those selling properties. 

Buy to let even lost its ability to be a good investment. Rather than hold on to a property when renting was more expensive than buying, landlords could sell their property and at top price not expected in the years prior.

Move ahead by a year and things have drastically changed. For some, so quickly that they have yet to grasp what happened and what will happen in the months ahead.

The base rate of 0.1% was changed to 0.25% in December 2021 as a response to growing inflation. The change from 0.1% to 0.25% can seem minimal, but it is a jump of more than double. What continued for the next nine consecutive meetings of the MPC was an increase in the base rate. It now sits at 4.0% following the February meeting. In a bit over a year, the rate grew from nearly zero to 4.0% and if you hold a loan that is impacted by this level of change the difference in borrowing cost could be substantial.

Homeowners hold loans of large debt value in comparison to other typical loans, and such a change could be difficult. This is why homeowners could be caught unaware. If their mortgage or remortgage was obtained during the pandemic historic low interest rate offers, and their mortgage term is coming to an end the difference in their monthly repayments could be impactful on their budget. For some it could be unaffordable. 

This is not a financial problem that will be going away. Interest rates are not likely with things remaining the same or even with healing from a possible recession would interest rates return to nearly zero interest rates. 

Unfortunately, the higher interest rates are not the only problem. In discussing the state of the housing market and the growing demand that pushed house prices upward, it is a real possibility that a newer homeowner will not only be facing higher borrowing costs with their mortgage loan but they will discover they are in debt for a greater amount than the value of their purchase. 

When debt overtakes the value of a home during a decline in the housing market it is considered going into negative equity. Equity is the part of the home the homeowner actually owns. For instance, a home is of a particular value and the buyer offers a 10% deposit and the lender offers the other 90% toward the purchase price in a loan. The simplified view is that the homeowner owns 10% of the home according to the value. If the property value increases, it is simple to quickly obtain equity of 15% or even more as happened for some during the housing market in the last few years as house prices grew. 

However, as house prices decline, so can property values. As easy as equity grew in the last few years, it could decline. In fact, experts believe a 20% decline is possible. At least that is the drop in house prices believed to be necessary to keep buyers in the market.

What is a homeowner to do to try and protect their budget as interest rates increase and repayments become more expensive? A remortgage is an opportunity to get on steadier ground when a homeowner’s mortgage term ends.

At the end of a mortgage term, the homeowner could remortgage or the lender will move them to their standard variable rate or SVR, but a remortgage is likely to offer the lower interest rate. A fixed rate remortgage could not only offer savings but also shield against further rate hikes. 

Experts encourage all homeowners to review their current mortgage. Prepare for the end of their term and choose rather to remortgage or wait until later when rates could be higher. Shop online now and obtain quotes to see what offers are available, and determine what savings are possible. It should also be noted a homeowner could discover whether the homeowner is still in equity or edging toward negative equity where remortgages are out of reach. 

Experts believe house prices need to correct. Wages are not keeping up and hopeful home buyers are being shut out of the market. Prices are still high and it is a risk to purchase at levels that do not reflect sustainable values. 

It had been a hope that the correction in the market would be subtle and slow, but it appears it will be faster since it is happening now. The drop in house prices could be as low as recently predicted of 8% by the end of the year, or it could be as others have forecasted to be more dramatic and in double digits.

Experts believe it is inevitable for house prices to decline. With this change downward will come property values, and greater in some areas than others. A recession once expected to be long lasting could now be short lived. Forecasts are changing from moment to moment as the factors at play are abnormal such as Brexit, a war in Ukraine, and a pandemic still holding on. 

To prepare and weather the financial stresses due to come, it is best to hope for the best but get ready for what could be hard. For homeowners, it might be very hard. Heed the advice of experts and try to save now against what could impact in the months ahead, and the tool to do that might be a remortgage.