The Office for Budget Responsibility (OBR) has issued a forecast for UK house prices. A decline is due to occur in 2023 until the autumn 2024. The end of the year is expected to reveal growth of 10.7% followed house prices down by 1.2% in 2023 and an additional 5.7% in 2024. Homeowners should go on alert and prepare with this information because with declining house prices might come lower property values which could put a homeowner into negative equity.

When the property value declines below the level of debt on the property the homeowner’s loan is said to be in negative equity or underwater. There is a risk of this happening to many homeowners that bought their homes when prices were soaring during the pandemic buying frenzy. 

There is always the chance that in some areas house prices will decline enough to bring some home buyers back to the market despite higher interest rates. If this occurs, it could keep homeowners that would have gone underwater above the balance area and perhaps even into equity levels.

The OBR did offer some optimistic forecasts for the housing market following the decline in 2024. Prices are expected to rise by 1.2% in 2025, 3% in 2026, and a further increase of 3.5% in 2027. Not nearly the increases experienced during the pandemic, but possible forecasted increases, nonetheless. However, the forecast in the years ahead was stated as being uncertain due to mortgage rates and the cost of borrowing.

The current standard base interest rate of the Bank of England is 3.0% with an increase possible of 0.50% during the meeting of the Monetary Policy Committee (MPC) in December. It is expected to go to 5.0% or more next year before the MPC becomes less aggressive to control inflation. The current base rate has put lenders offers at an average of over 6.0% on two-year fixed rate mortgage and remortgage deals.

There will be a close eye put to watching the activity of first-time buyers in the housing market. They are critical to the market to be buyers of starter new homes and for purchasing homes from those looking to upgrade to larger properties. In times before, when the market was faltering, the government stepped in with schemes to help first time buyers and that could occur again.

Homeowners not only have the risk of going underwater, but they will be facing higher repayments due to higher interest rates. Those that have escaped the increases due to holding a fixed rate mortgage will eventually reach the end of their term and could only have higher interest rate offers to choose from. 

There is concern for those homeowners that mortgaged as new home buyers during the pandemic when the Bank’s base rate was at an all-time historic low of 0.1%. Those nearing the end of their term are going to have higher cost rates offered to choose from with a remortgage. Those that do not remortgage and allow their lender to move them to the lender’s standard variable rate (SVR) could be paying on interest rates double or more those offered with a remortgage.

The current interest rates are still higher than those offered in the few years pre-pandemic. Therefore, all homeowners should consider shopping for a remortgage now. Waiting until one’s term ends could put higher interest rates as the choice. Some homeowners are taking on a penalty fee to end their term early to allow remortgaging from current rates. It isn’t the right choice for all homeowners but could be considered.

Since all homeowners might benefit from a remortgage, all are encouraged to shop sooner rather than later. Remortgage shopping online is easy and quick. Visiting a remortgage lender website could offer a quote in mere minutes. Visiting a remortgage broker could put several quotes from a variety of lenders in hand to review and compare to discover the best remortgage offer. The broker might also offer an exclusive deal not offered directly from the lender.

The current global issues are putting pressures on all sectors of the economy and consumers. Preparing for the months ahead is key in taking on a good financial strategy. For homeowners, shopping for and perhaps choosing a remortgage could offer some relief for their budgets.