Best Remortgage Strategy and Risky Remortgage Strategy

Best Remortgage Strategy and Risky Remortgage Strategy

The largest hurdle to homeownership is buying in today’s market and it has not been harder to climb the property ladder than it is now. Interest rates are high, despite having declined recently as lenders become more competitive. Asking prices have continued to climb on top of the pandemic lifestyle buying frenzy and supply in the housing market is low. Coming off an inflation stress that reached double digits has made it difficult to save for a deposit.

There is a new buying scheme that was recently introduced to a select niche of buyers, but it is still difficult to become a homeowner. Creativity has come into play for hopeful buyers as they borrow from family and friends, choose cheaper homes that need upgrading and improvements and do the work themselves, and even partnerships into fixer-upper homes where they buy, live, fix, and sale several times until both have the funds to buy their own dream home.

After the obstacles of becoming a homeowner are conquered, few would expect to then face difficulties in remaining homeowners. For many UK homeowners, the last year has been financially difficult with affordability becoming an issue due to the higher cost of borrowing.

Those that obtained two-year fixed rate deals or other fixed rate mortgages with terms due to end this year are likely facing a reality they couldn’t have imagined. 

For those that secured their fixed rate two-year mortgage or remortgage in 2022, this year will end what could likely be the lowest interest rate they will ever pay. Their current term will end along with their interest rate, and they will either remortgage or their lender will transition their loan to their standard variable rate (SVR). 

The choice strategy for homeowners is to avoid a SVR. A remortgage usually offers the lower interest rate of the two. Also, a remortgage offers the ability to choose a fixed rate while the SVR being variable could change with little to no warning and put the homeowner into a rush to remortgage should rates climb. 

It should be noted that lenders do not need to wait on a decision by the Bank of England’s Monetary Policy Committee (MPC) to either raise or lower their rate offers. This year, in the brief five months that have passed, lenders have surprisingly lowered their rates to some being below the Bank’s standard base interest rate to increasing them, to again cutting rates. 

Choosing from current rates after having choices that were so low in 2022 can seem stressful, but focusing on the fact that rates were low then due to the pandemic and were never going to remain at historic low levels could help adjust one’s perception of current offers. The fact the homeowner was able to take advantage of the lower rates at all was helpful, even if currently they face losing that cheap rate.

In June 2022, the base rate was increased by the MPC to 1.25% from 1.0%. The current base rate is 5.25%. Lender rates are likely to be higher or near the base rate, with a recent report revealing the average top ten lender two-year fixed remortgage rates reached 4.94%. In November 2023, the average was 5.40%, then it dropped to 4.46% in February, and increased to the current rate of 4.94%, yet it still is under the base rate. Some current offers reflect what would be expected if the MPC had already cut the base rate.

The up and down movement of lender rates was in reaction to the UK inflation rate. Optimism grew, but the rate disappointed in staying above the target rate set by the Bank of 2.0%. The less than expected inflation reports triggered lenders to pull their best rates and they have slowly been increasing. 

There had been hope of the MPC cutting the base rate in June. It could still happen, but experts are more hopeful for one in late summer. The hope for a majority vote of the committee in June to cut the rate is based on the opportunity for there to be two inflation reports before the MPC meets next month. The MPC met in early May, and the inflation report came out afterwards, showing it had declined from 3.2% to 2.3%, but still higher than the expected decline to 2.1%. The next inflation report will be on 19 June, followed by the MPC meeting on 20 June. 

With another decline like the one in May, there is the possibility of pushing inflation below target, and the MPC could offer small relief by cutting the base rate by 0.25% to 5.0%. It would be the first cut to the rate since March 2020, when the MPC voted during the pandemic to take the rate to an historic low of almost zero at 0.1%. 

That possibility is why many lenders have chosen to begin cutting their rates or have decided to refrain from pulling their best offers from the lending market.

If, however, the MPC holds off from a cut and it appears the best chance of a vote to cut is late summer or early autumn, lenders could respond by increasing their rate offers even though the Bank held the base rate steady.

This might foreshadow the low rates of today disappearing as soon as a few weeks from now. Meaning another smart strategy for homeowners coming to the end of their mortgage term is to shop for a remortgage sooner rather than later. 

Holding out for lower rates is risky. Expecting them to be much lower than they currently are is also risky and unlikely. Security in the current rates has made the five-year fixed rate remortgage the most popular for homeowners of late.

It is easy to remortgage shop online. Fast, no strings attached, remortgage quotes could be in front of a homeowner in minutes. Shopping online with a remortgage broker could make numerous quotes from a variety of lenders available to the homeowner. Brokers might also offer exclusive deals from lenders. A borrower could also go from website to website of lenders to gather quotes. 

Reviewing and comparing quotes to find the best remortgage deal for the homeowner could not be simpler and is exactly the strategy experts encourage as lending rates fluctuate right now. Holding out for lower rates, especially by taking on a SVR and pushing aside a remortgage, could have the homeowner paying more than necessary in the hopes for lower rates that might already be available.

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