Should Homeowners Remortgage Before the MPC Cuts the Base Rate

Should Homeowners Remortgage Before the MPC Cuts the Base Rate

Homeowners might be finding it difficult to decide whether to remortgage now or wait. This is especially a trying decision for those coming to the end of a two-year fixed rate mortgage obtained in 2022. There are also those homeowners who have already had their term end and have allowed their lender to move them to their standard variable rate (SVR) and are waiting out for lower rate remortgages. The Bank of England’s Monetary Policy Committee (MPC) will meet in a few days, and it is not expected a vote to decline the rate will occur in May, so the wait will be longer for a cut to the current 5.25% base rate.

Homeowners coming to the end of a two-year fixed rate mortgage are likely concerned about accepting the situation they find themselves. The base rate in April 2022 was only 0.75% and grew in May to 1.0%. In comparison to the current rate, lender offers were reflective of the then base rate and were much lower. This means those homeowners with two-year fixed mortgage terms ending this year could be facing financial strain due to higher rates.

Affordability is a concern for some homeowners. There are those that may turn to leasing out their home and moving in with family or friends until better rates return. They can rent the home to pay for the mortgage and perhaps save money as well. Others have turned to selling their home as prices could net them a profit to save for their next purchase. While the majority of homeowners will fight their way through the financial strain and face the new rates available and stay put. 

This is where the decision is between either waiting out for lower rates in remortgaging while paying on a SVR, or remortgage sooner and avoid a SVR.

Homeowners should be aware of what remortgage offers are available now and compare them to what the rates and offers might be when the expected cuts occur. The forecasts are for a rate cut in August and perhaps another before the end of the year. The cuts will likely be 0.25% and the minimal cuts will be due to the MPC desiring to keep inflation under control. Voting a larger cut could trigger spending and inflation might increase. This is why conservative cuts to the base rate will likely occur until inflation sits at or slightly below the target rate of 2.0% for a considerable amount of time.

For homeowners choosing to wait out a remortgage thinking rates will decline sharply and they could choose from much lower rates than are available now, it is not likely to happen. Rates will not return to the levels available in 2022. Rates will not decline sharply from where they are now if the standard base interest rate is cut by the end of year by a total of 0.50% or 0.75%. 

The difference in what could be saved by waiting for a remortgage and choosing from later lower rates must be weighed against the money spent being on a higher and riskier SVR to do so. Likely more money will be spent on a SVR. 

Homeowners choosing a remortgage and later finding much lower interest rates could choose to end their deal early to remortgage again. There will likely be penalty fees involved, but depending on the deal, the homeowner might determine paying the fee is worth taking on for a new deal.

In choosing a remortgage, experts encourage homeowners to take into consideration the total savings of a new deal. Take into account all savings with the interest rate as well as the cost of any fees or services. It will give the true savings or cost of a new deal. This too, could be done by comparing a remortgage to a SVR, keeping in mind to consider the risk should the lender choose to increase the rate with little to no notice due to it being the lender’s SVR.

Lenders can and will increase their SVR if they deem it necessary. There are varied reasons why that would occur such as an increase in the cost incurred when banks and lending institutions borrow from one another, called swap rates. It could also occur because the lender is less optimistic about the risk in lending due to the economy. No matter the reason, if rates could increase on a mortgage loan, the homeowner should be prepared to handle the higher cost repayments. Choosing a steady repayment is considered a better option for homeowners with budgets better suited to constant monthly amounts, especially if the repayments would be higher than their previous deal.

Waiting out for lower rates could or could not be a smart strategy. If the homeowner is not yet near the end of their deal, and they are paying a lower rate than currently available then waiting is warranted as the forecasts adjust as to when the MPC might vote to lower the base rate. Those nearing the expiration of their current term will have to consider the cost of a SVR and the savings of a remortgage. Any homeowners already transitioned to a SVR will need to consider rates might increase before they decrease in late summer, if then, and that remortgaging likely offers a savings over a SVR.

The choice of whether to remortgage now or later is unique to the homeowner’s needs and current financial situation. This is why experts encourage homeowners to shop for a remortgage online to quickly obtain remortgage quotes to compare and review. By doing so, the homeowner could be better informed as to what options and benefits are available by remortgaging sooner rather than later.

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