Rising interest rates have created a sense of urgency for homeowners to learn all they can about remortgaging. It is an often overlooked opportunity when interest rates are low, as they have been for a few years. However, when rates are rising, it certainly should be on the top of every homeowner’s priority list to shop for a remortgage deal and determine what benefits could be available to save money.

During the global pandemic, at the height of lockdowns, the Bank of England’s Monetary Policy Committee (MPC) lowered the standard base interest rate to an all-time, over 300 years historic low of 0.1%. As the economy struggled while in the grips of the pandemic, a surge in the housing market that was unexpected occurred. 

Home buyers sought out a new home environment that was more suited to a pandemic lifestyle. Buyers wanted more space and the buying frenzy in the housing market was dubbed the Race for Space. Hopeful home buyers sought more space outdoors for the family to be outside safely, including the ability for pets to exercise in their own outdoor garden. They also desired space indoors for working from home successfully, for children to study, and for more room to enjoy entertainment and fitness goals.

Borrowing was historically cheap, and it was almost the perfect storm for buyers to flee the city and seek the countryside cottage living where they could buy at desirable and affordable prices. It offered more room and a lifestyle that was healthier and happier than being in lockdown and being compromised in efforts to work, study, get fit, and entertain yourself and other household members.

Not only were interest rates historically low, but there were government schemes to assist first time buyers and the stamp duty was absent or reduced for some purchased homes. Buying was cheap and homeownership dreams were coming true.

The demand in the market created higher prices as supply dropped. However, the higher prices did not deter buyers as interest rates remained very affordable.

Then inflation crept in as consumers began to return to their normal lifestyles after vaccines and knowledge about the pandemic made it safer for people to return to shops, schools, and pubs. Spending grew as a war developed in Ukraine putting strains on an already slowed down supply chain. Energy costs began to grow as well.

Inflation was growing at rates not seen in decades and while experts believed the historic low base rate of the Bank would soon rise, it had been expected to do so in early 2022. It surprised many economists when the MPC voted in December last year to raise their rate from 0.1% to 0.25%. Each meeting since then the rate has been hiked, and as of the November meeting this year the rate stands at 3.0%. Another increase is expected in days during the December MPC meeting and the rate could be raised to 3.5%, according to experts.

It means in one year, the rate will have shifted upward from an historic low of almost zero at 0.1% to 3.5%. The difference in cost to someone borrowing is vast. It is especially so for borrowers that are also dealing with higher energy costs and inflation. Considering that homeowners are holding large debt amounts with their property, and they may not have prepared for their interest rate to soar in such a short amount of time, experts are issuing warnings. 

Many homeowners could be caught so unaware and unprepared it could cause financial hardships that could set them back for years to come as they struggle to gain their footing to where they were prior to the economic shift experienced this year.

Homeowners might be unaware of the shift that will also occur in their own repayments. A mortgage term that was secured when rates were low, and perhaps historically low and once affordable might soon be a strain and for some simply unaffordable. 

Once a mortgage term ends, as many are set to do this coming year, the homeowner could remortgage, or they can allow their lender to move their loan to the lender’s standard variable rate (SVR). If rates were on the decline, or were extremely low, then a SVR, while risky due to sudden changes in the rate and therefore repayment amounts, could be acceptable for some homeowners. When rates are rising, it simply means that the homeowner will be experiencing increases to their repayments and in the current economic environment, it would mean many increases.

A SVR is also typically at a higher level than what would be offered with a remortgage. Rather than pay more than necessary, experts encourage homeowners to avoid their lender’s SVR and shop for a remortgage deal. Not only could a lower interest rate likely be found, but locking in the lower rate with a fixed interest rate deal is possible which offers further savings against future rate hikes by the Bank.

It should also be noted that with higher interest rates it is expected that affordability will become an issue for home buyers. Fewer home buyers could lead to falling house prices, and some areas will experience great declines in property values than others. This can be an issue for newer homeowners. If a homeowner experiences a decline in their property that falls below the debt on the home, then they are in negative equity or underwater with their mortgage. If this happens, the homeowner will not be able to remortgage and will be stuck paying higher interest rates. This is a great issue to be concerned with since rates are expected to rise even further in the months ahead to possibly 5%. 

A 5% standard base rate by the Bank could lead to possible double digit lender rates.

To avoid the future higher rates possible, and for some to avoid being held prisoner by one’s mortgage should they dip into negative equity, some homeowners are ending their mortgage terms early. The penalty fee to end a term early is considered worth the ability to remortgage early with current interest rate offers rather than later when rates could be much higher.

It is simple and quick to determine what remortgage opportunities are available. Shopping online with a remortgage lender will lead to a quote to review. A homeowner could also shop online with a remortgage broker and obtain numerous quotes from a variety of lenders to review and compare. Brokers often have exclusive deals available, too. They also are helpful to those with complicated remortgage needs since they work with a variety of lenders and will know which lenders are willing to offer deals for their specific needs.

A few short minutes online could put a remortgage quote in hand that would set a homeowner up with a safety net to endure the financial hardships ahead. What is done now, sooner rather than later, could make all the difference.