Navigating Inflation and Mortgage Rate Challenges Will Continue for UK Borrowers

Navigating Inflation and Mortgage Rate Challenges Will Continue for UK Borrowers

House prices are forecasted to continue a downward trend. Hopeful home buyers are finding it difficult to navigate inflation, higher interest rates, and the still elevated house prices found in the housing market. The lack of demand from home buyers could lead to a decline in house prices by 10% in autumn of next year according to a research report from Other forecasts have house prices falling by anywhere between 5% to 10%, very few believe the housing market will see a boost or remain steady.

Despite the outlook on the housing market, there is not an expectation of a housing market crash. 

Some experts see a decline in house prices as a needed correction after the strong demand from home buyers during the pandemic. There were so many buyers due to historically low interest rates that average house prices broke records many times over.

During almost the entire year of 2021, the Bank of England’s standard base interest rate was near zero at 0.1%. With cheap rates, higher house prices had little impact on the demand of home buyers. Not only did they remain in the market despite record high prices, but they also purchased homes that would have been unaffordable had interest rates been closer to usual. First time buyers shunned the usual starter homes and purchased larger properties that used to be out of reach of new homeowners.

It is the combination of new buyers purchasing their homes during the period in which interest rates were historically low, current higher interest rates, and a declining housing market that could cause financial issues for homeowners. 

Many of those homeowners, the ones that mortgaged when incredibly low interest rates were offered by lenders, took out two-year fixed rate deals. Their terms have come to an end this year or are approaching the end in the coming months. At the expiration of their term, the homeowners have the choice to remortgage or to allow their lender to move them to their standard variable rate (SVR).

A remortgage choice over a SVR could save a homeowner a substantial amount of money. Also, with a remortgage, the homeowner could choose a fixed rate deal to lock in the rate for the duration of the new term possibly saving them more money.

In 2024, there are still others that will come to the end of their term. It was at the end of 2021, in December 2021, that the Bank’s Monetary Policy Committee (MPC) first increased the interest rate and continued to do so for fourteen consecutive meetings until September of this year. Even when the rate was increased that December, lender rates were still was quite affordable with the Bank’s rate at 0.25% in comparison to the current rate of 5.25%. 

When homeowners seek a remortgage to save money, it will matter how the housing market is performing. A decline in buyers could lead to a decline in house prices and that could lead to a decline in property values. When property values fall, a homeowner is in danger of moving into negative equity. 

Negative equity occurs when the property value falls below the debt on the property. Without positive equity, a homeowner cannot remortgage and therefore the benefits and opportunities, including possible savings are out of reach.

A healthy housing market will keep homeowners in reach of a remortgage and for some in reach of better interest rates because their loan to value or LTV is in a good ratio.

Whether or not the housing market will be resilient will rely on the dreams of home buyers and how determined they are to climb onto the property ladder despite higher interest rates. Saving for a deposit will be difficult as inflation continues to impact their budget. 

The good news is that there are deals to be found for both home buyers and homeowners. While rates are higher than they were only a few years ago, many lenders are competitive for the attention of borrowers and are offering rates that are attractive, but they could disappear as soon as next month. 

While the last two MPC meetings have resulted in a vote to keep the base rate steady, depending on inflation, a rate hike could occur. This is why many homeowners are shopping for a remortgage early, and home buyers are planning to buy before the end of the year.

Waiting could be a mistake for a mortgage or remortgage. If house prices decline, the asking prices could be more lower, but interest rates will play a part in whether the housing market is affordable, especially for first time buyers. For homeowners, waiting could result in being moved to a SVR, missing out on a remortgage due to negative equity, or facing higher interest rates. 

It would take a crystal ball to know exactly what will happen in the year ahead, but preparing a strategy to save money simply requires focusing on the opportunities available for home buyers or homeowners.

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