The Outlook on Inflation and Why It Matters to Homeowners

The Outlook on Inflation and Why It Matters to Homeowners

Inflation is a hot topic these days. It should be as it has the potential to make drastic financial impacts on the UK economy, businesses, and households. Homeowners are being warned to keep an eye on their mortgage due to inflation, and many are unware of exactly why that is so. The main reason is because as inflation grows, so likely will interest rates and that could mean a homeowner’s property loan is going to be more expensive.

Taking action to curb inflation, the Bank of England’s Monetary Policy Committee (MPC) has been increasing the standard base interest rate. It has grown from the long standing over 300 years plus historic low in December 2021 of 0.1% to 1.25% in June 2022. There was a rate hike at each of the last five consecutive MPC meetings and the current 1.25% is the highest the rate has been in over a decade.

In basic terms, the interest rate is the cost of borrowing money. It is how the lender charges for the use of their funds. When interest rates are low the cost of borrowing is low. When rates are increased the cost increases.

Homeowners are being warned to prepare for higher repayments. Those that are currently on a fixed interest rate have their rate locked in until their term expires. There are many homeowners that are due to have their mortgage term end in the next six months. They have a choice to remortgage or allow their lender to move them to the lender’s standard variable rate or SVR.

A SVR is considered risky for households that aren’t capable of having their repayments change and sometimes they are increased quickly. At times when rates are lowering, an SVR could be a risk worth taking, but that isn’t currently the case. Most SVRs are likely to have many increases in the months ahead, and could be double or more the interest rate level available with a remortgage.

By being aware of one’s mortgage, especially the current rate, loan type, and the expiration of the current term will help a homeowner prepare to make smart financial decisions for the near future. It certainly isn’t a time to be unaware of opportunities to save, get cash into hand, or secure a rate rather than accept multiple rate increases.

Inflation isn’t expected to be on a decline until perhaps the end of spring or early summer next year. The control of inflation will be in large part due to the action taken by the MPC which means hiking the base rate.

A remortgage, rather than a SVR, could offer a savings for some homeowners, especially those that look ahead and consider a fixed rate obtained now is better than paying on rates that are increased numerous times over the next months.

With remortgaging, some homeowners could cash in their built up equity and have money in hand. An equity cash release remortgage allows a homeowner to have money to make needed purchases, consolidate debt, create an emergency fund, or make improvements and upgrades to the property which in turn could increase property value. Due to the expectation of costly fuel and energy over winter, some homeowners are thinking ahead and are upgrading their heating system to be more energy efficient and less costly overall.

All homeowners are encouraged to shop for a remortgage online. It is quick and easy and offers quotes of possible remortgage opportunities. A homeowner could go from lender website to website or shop with a remortgage broker to get quotes from numerous lenders at one site in which to review.

Rather than wait out the expectation of higher inflation, which takes money out of households, and then face higher repayments as well, taking action now by simply shopping online for remortgage quotes could lead to not only a financial safety net for a homeowner, but peace of mind as well.

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