The housing market is set to strengthen and demand in mortgage lending will also bring about a greater supply of mortgage products and perhaps more competitive rates according to recent survey data released by UK Finance. The poll was conducted between 26 February and 15 March, during a time in which the meeting of the Bank of England’s Monetary Policy Committee (MPC) had yet to meet on the 21st and the latest inflation report had not yet been released which occurred on the 20th of March. The survey revealed 19% of lenders expected the supply of mortgages to increase in the next quarter which is the highest data response since early 2021.

It is also noted that lenders believe default rates for both secured and unsecured credit to increase in the second quarter of the year. This shows that lenders believe there are many borrowers unlikely to afford their loans and perhaps the focus is on homeowners in the tricky transition to a new rate after their current mortgage term ends, of which there are over a million due to end in 2024.

Those with the most financial shock to endure are likely the homeowners coming to the end of a two-year fixed deal obtained in 2022. While at the time rates were rising, they were enormously more affordable than current rates. 

In March 2022, the MPC met and increased the rate for the third consecutive meeting to 0.75%. The meetings would continue to see rate hikes for fourteen consecutive meetings and voted to remain steady in September 2023 with the committee believing the then and now rate of 5.25% to be the peak rate needed to bring inflation under control.

The recent MPC meeting on 21 March resulted in a majority vote to hold the rate steady again, but for the first time in two years there was not a member of the committee voting for a rate hike. Instead, there was one member voting for a rate cut. The MPC meeting followed the announcement that the stubborn inflation rate of 4.0% which had been held for months had declined to 3.6%. Inflation had at least fallen below the 4.0% level, which is double the target rate for inflation set by the Bank of 2.0%.

Not long after the survey of lenders was conducted which ended on 15 March, the inflation rate was reported to take a downward trajectory toward target, and the MPC voted to keep the base rate steady at 5.25% with an optimistic tone of the members signaling a turnaround of calls to increase the rate to instead cut it. It leaves the question as to whether the information would have been more optimistic or remained on a trend of less optimistic which emerged in the mortgage lending market in March.

In the start of the year, optimism grew of inflation taking a rapid decent to target and the MPC choosing to cut the rate perhaps one or possibly two times in the first half of the year. Lenders seeking to grab the attention of borrowers capable of affording current rates and intent on staying in the housing market began to create a competitive lending market. They were confident in a base rate cut and chose to take an early lead drawing in borrowers.

As lender rate cuts declined, with some mortgage deals offered below the current standard base interest rate, borrowers responded and a boost to the housing market occurred, but then optimism began to wain and lenders began to pull their lowest rate deals. The optimism declined, and despite inflation moving downward, it did not seem to be enough to keep new lower deals appearing on the market by the end of March.

Optimism for a rate cut in early summer, perhaps by June remains, but there are those pushing out the expectation for a rate cut to happen in August.

Meanwhile, despite the lower rates appearing for home buyers and some lower than expected rate offers with remortgages in the first quarter of 2024, they did not mirror the rates homeowners would have secured in 2022 with a two-year fixed rate mortgage. 

The two-year fixed rate mortgage was popular in 2022 when rates were rising. Hopeful home buyers watching the rate rise from the historic low in December 2021 of 0.1% to 0.25% would not have imagined there would be an additional thirteen consecutive MPC meetings with votes to increase the base rate to 5.25%. In February 2022, the rate was increased from 0.25% to double at 0.50%. In March, the rate increased to 0.75%. Without a MPC meeting in April, the rate remained until May when the rate rose to 1.0%. By the end of 2022, the rate was at 3.50%. Throughout 2022, home buyers securing a two-year fixed rate mortgage would have chosen a rate much more affordable than available now putting home affordability issues at the forefront of their financial battles when their terms end.

Experts are weary for the homeowners that were unaware of what was ahead when their mortgage term ended. Many new homeowners are caught off guard having been caught up in the joy of climbing onto the property ladder and taking little notice of warnings of what would happen if rates increased. With rates so low during the pandemic, and many home buyers having their first face to face with rising interest rates, few would have considered the consequences of coming to the end of their fixed mortgage term and losing their current rate forever.

The best strategy so say experts, is to remortgage shop and do so as early as possible. Being aware of what is ahead and the difference in monthly repayments could put household budgets on alert to handle the squeeze. Those nearing the end of their mortgage term are encouraged to shop sooner rather than later. There are attractive deals on the market, with some near the base rate, and those could disappear quickly should lending become tight or even less competitive. 

For homeowners at the end of their mortgage term or those having let it pass and allowed their lender to move them to the lender’s standard variable rate (SVR), the warning is you are likely paying more than necessary. A SVR robs the possible savings found with a remortgage. The rates of a SVR are not only normally higher, and in some cases substantially higher, but they are attached to a variable loan and lenders can and do change SVRs with little to no warning and could increase them even when the MPC does not vote for a rate hike. It is risky to be on a SVR and a remortgage could offer a lower rate, savings, and a fixed rate deal to offer peace of mind in this ever changing, hard to forecast economic recovery.

Shopping for a remortgage is easy to do online. Remortgage brokers offer quotes from a variety of lenders and often have exclusive deals not available directly from the lenders. Homeowners could also go from website to website of lenders to gather quotes to compare and review. 

Homeowners, whether they are aware or unaware of the changes an interest rate can make on their monthly repayments, should not wait out for a decline to the levels of 2022 or even the best of early 2023. The forecast for the most optimistic expectation is the base rate will reach 4.75% at the end of 2024 and that is simply the base rate and homeowners should expect lender rates will likely be higher. Getting a remortgage to avoid a SVR could save money.