Need to remortgage
As the UK braces itself for the local elections in May, homeowners are facing an ominous challenge: a surge in mortgage costs due to the ongoing wave of high interest rates.
Savers may consider securing a competitive fixed rate at present, given that the Bank of England has maintained the base rate at 5.25% for the second consecutive time, as announced today. As for those with mortgages, the decision is more nuanced and hinges on factors such as the mortgage type you hold and the timing of your current deal’s expiration.
Labour’s analysis has raised a red flag, indicating that this financial storm could impact more than 630,000 homeowners before the upcoming elections, as reported in “The Guardian”. In our article, we will explore the current mortgage landscape, providing valuable information for borrowers who need to remortgage in these challenging times. Additionally, we will discuss possible solutions for those borrowers who need to remortgage.
Understanding the situation
To grasp the severity of the situation, let’s delve into some key statistics. According to the Office for National Statistics, Labour’s analysis suggests that, between November 2, 2023, and May 1, 2024, more than 3,400 households are expected to remortgage every day. This implies a financial time bomb, ticking away as the nation approaches the following local and general elections.
The sheer number of households remortgaging daily is a cause for concern. The act of remortgaging itself is not inherently problematic; it’s a financial tool that many homeowners use to manage their housing costs. However, the volume of households that may be required to undertake a remortgage may be putting it on the back burner or ignoring it until it becomes more problematic.
- Procrastination: Some homeowners may believe that the need to remortgage is not urgent. They might put off the process, thinking they have ample time to deal with it later. However, leaving such a critical financial decision to the last minute can lead to rushed and less-informed choices.
- Lack of Financial Literacy: Many individuals may need to comprehend the intricacies of remortgaging fully. This lack of financial literacy can be a barrier to proactive decision-making. When people don’t understand the potential benefits or pitfalls of remortgaging, they are more likely to defer the process.
- Overconfidence: In periods of economic stability, homeowners can become overconfident about their financial situation. They might believe that they are immune to financial troubles and, as a result, procrastinate on taking necessary financial precautions.
- Fear of Change: The prospect of change can be intimidating. Some homeowners may fear the complexities of the remortgaging process, leading them to delay it. Change, even when it can be financially advantageous, is only sometimes embraced readily.
- Playing the Waiting Game: The reluctance to decide, fueled by the fear of potential rate reductions. While it’s natural to want the best deal possible, this cautious approach can have its downsides.
The danger in this collective complacency is that it might allow the financial time bomb to keep ticking. Unforeseen economic shifts or interest rate hikes could catch these homeowners off guard, leading to potential financial hardship. In such times, homeowners may need to remortgage proactively to safeguard their financial stability.
Why are mortgage costs rising?
Several factors have contributed to the surge in mortgage costs. The most prominent among them is the Bank of England’s base rate, which has been held at 5.25%. In response to inflationary pressures and economic uncertainties, the central bank has been cautious about lowering the rate, leading to a situation where many homeowners now need to remortgage.
- Inflationary Pressures: Recent high inflation is one of the primary drivers behind rising mortgage costs. Inflation erodes the purchasing power of money over time, making each dollar or pound worth less in the future. When inflation rises, the BOE often increases interest rates to curb inflationary pressures. The idea is that higher interest rates make borrowing more expensive, which in turn can reduce consumer spending and slow down the economy, thus mitigating inflation.
- Central Bank Policies: Central banks, such as the Bank of England, are crucial in setting interest rates. When they perceive a need to control inflation or stimulate the economy, they may adjust the policy interest rates. The recent trend of pay increases indicates a growing economy, which can trigger central banks to raise interest rates to prevent overheating and excessive inflation, compelling more homeowners to need to remortgage.
- Anticipated Rate Hikes: The expectation of future interest rate increases can also impact mortgage costs. When financial markets anticipate that central banks will raise rates, mortgage lenders often adjust their rates in anticipation. This can lead to higher mortgage costs for borrowers before official rate hikes occur, further emphasizing the need to remortgage.
- Economic Recovery: Pay increases are a positive sign of economic recovery. As employment opportunities expand and worker competition increases, employers tend to offer higher wages. While this is generally good news for workers, it can pressure central banks to raise interest rates to keep the economy from overheating. When interest rates rise, so do borrowing costs, including mortgage rates, highlighting the need to remortgage.
- Global Economic Conditions: International economic conditions can influence domestic mortgage rates as well. Global factors such as geopolitical events, trade tensions, or international financial crises can affect interest rates. Investors often seek safe havens in response to global uncertainty, driving up bond demand and lowering their yields. Since the yields on long-term bonds influence mortgage rates, this can lead to higher mortgage rates, necessitating the need to remortgage.
In summary, rising mortgage costs can be attributed to various factors, including inflation, central bank policies, pay increases indicating economic growth, anticipated rate hikes, and broader global economic conditions. Borrowers should remain vigilant and stay informed about these factors to make well-informed decisions regarding their mortgage financing when they need to remortgage. Additionally, consulting with financial mortgage advisers can help individuals find the best solutions that align with their needs when they need to remortgage.
What role does Connect Mortgages play in this?
In the face of this formidable economic landscape, Connect Mortgages stands out as a beacon of hope for homeowners grappling with the burden of surging mortgage expenses. Brokers, as a whole, consistently occupy a pivotal position in enabling their clients to exhibit resilience during times of economic uncertainty, and this holds particularly true for Connect Mortgages’ dedicated brokers. Our expertise and commitment are invaluable assets for individuals who need more financial literacy when they need to remortgage.
Connect Mortgages has firmly established itself as a trusted sanctuary for homeowners, and we are also dedicated to dispelling some of the reasons for homeowners putting off seeking professional assistance. Our approach empowers borrowers to address the impending financial challenges that loom between now and May 2024.
Over the past 13 years, borrowers have relished the advantages of borrowing at historically low interest rates, often commencing with percentages as low as 1, 2, or 3. However, it is imperative to recognize that this era is now behind us. Borrowers must confront a new reality, recalibrate their approach, and adapt to interest rates in the 5 or 6 percentage bracket. By doing so, borrowers can proactively prepare for a changed financial landscape, ensuring their financial well-being and making well-informed decisions that align with the evolving economic circumstances when they need to remortgage. 
If you find yourself among the 630,000 homeowners facing higher borrowing costs, it’s time to consider reaching out to Connect Mortgages. Our team of experienced advisers are ready to take your call. Don’t let the rising tide of mortgage costs catch you off guard – connect with Connect Mortgages today and take control of your financial well-being. When you need to remortgage, Connect Mortgages is here to help.
If you’re interested in exploring more articles related to this subject, please don’t hesitate to check out our blog category dedicated to “Interest Rates | Economy”.
