The New Year usually brings about a positive outlook as new beginnings bring about new opportunities and new outlooks. There are hopeful viewpoints and certainly homeowners are not the exception. In 2024, many are hoping to find relief from the overwhelming financial strain that 2023 brought them, and others are hoping to avoid the same fate in the new year. Borrowing has grown exponentially expensive and in just two years, homeowners have lost the opportunity to pay interest rates based on an historically low base rate of almost zero at 0.1% to a base rate of 5.25% which is a fifteen year high.

The Bank of England’s Monetary Policy Committee (MPC) started in December 2021 to increase the base rate to fight rising inflation and more than doubled the rate from 0.1% to 0.25%. The rate remained until February 2022 when the MPC meeting resulted in doubling the rate to 0.50%. The rate was increased during fourteen consecutive MPC meetings throughout 2022 and into 2023 until the rate was held steady during the September, November, and December meetings of 2023.

The current rate of 5.25% will hold until the next meeting of February 2024. It is expected the majority vote will be to keep the rate steady. The same as the December meeting, but it was then that three MPC members voted to increase the rate. 

Inflation dropped in November to 3.9%, and though the decrease is optimistic, few believe the MPC meeting could result in a cut, especially since inflation is almost double the target rate of 2.0%.

This all means that homeowners who took advantage of one of the more popular mortgages of 2022, which was a two-year fixed rate deal, will be coming to the end of their term this year. Their fixed rate will end, and their current rate, which was based on some of the lowest mortgage offerings ever, will be gone. They will have a choice to either remortgage for a chosen rate, and another fixed rate if desired, or choose to allow their lender to transition them to their standard variable rate (SVR).

Currently, some lenders are offering remortgage deals near or under the base rate of 5.25%, while SVRs are near 8.0% or higher. 

The choice to remortgage is the key opportunity for a homeowner to get a new deal with a lower interest rate and avoid a SVR. The choice to remortgage also offers a chance to get a fixed rate again and shield from any further rate hikes that would occur during the length of the new term. 

Again, it is the choice or opportunity to remortgage that could save a homeowner money, and unfortunately many cannot, and it is estimated another 10,000 in 2024 will lose the ability to remortgage due to falling into negative equity.

Negative equity happens when a homeowner’s property value declines beneath the debt of the property. Because a loan to value ratio, or LTV influences a lender’s decision in offering a loan, negative equity would certainly block the ability of a homeowner to remortgage.

When the housing market was booming during the pandemic, in 2020 and 2021, homeowners could simply watch their property value climb in amounts that would have taken years, if not a decade to grow. However, for those that were not homeowners until 2022, equity did not grow as fast. Instead, interest rates grew.

The UK housing market is slowing due to higher borrowing rates, and as house prices decline due to a lack of demand, so could property values decline.

Higher interest rates scare off home buyers, and for some, it closes them out due to affordability issues. 

Homeowners, however, must face higher rates and are stuck paying their mortgage, even in times when interest rates increase, and the cost could be substantially more than expected. Remortgaging can offer relief, but for those that are in negative equity and unable to remortgage, they are moved to their lender’s SVR and are then at the mercy of paying a higher rate and subjected to increases, and increases could occur even outside of any action taken by the MPC.

Homeowners could become prisoner to their mortgage, with higher rates, higher repayments and left struggling financially due to the increase in repayments that there is little they can do to bring their negative equity into line to qualify for a remortgage. 

Homeowners out of reach of a remortgage could face affordability issues, and going into arrears is a possibility for many. 

Avoiding negative equity and remortgaging early to a fixed rate is the strategy of some homeowners. Rather than become a prisoner to their mortgage and falling into negative equity and out of reach of a new deal which could save them money, they remortgage early. 

Homeowners usually may remortgage up to six months prior to their term ending without a penalty fee. Some homeowners will consider a penalty fee for ending their deal early worth the peace of mind in securing a remortgage rather than face a higher SVR and possible repayment increases.

It is easy to discover what remortgage deals are currently available to a homeowner by shopping online. Remortgage brokers could offer many quotes from a variety of lenders and possibly exclusive deals. Homeowners could also visit remortgage lender sites to gather quotes to review and compare. 

The strategy to remortgage is obviously a smart one, but not possible for all. For those that can, or those that can now, a few minutes online could offer information to help get them avoid missing out on an opportunity that will slip out of the hands of thousands this year.