Interest rates and remortgaging: is there synergy between the two?
Is now the right time for homeowners to consider remortgaging in the face of low interest rates
Interest rates in the UK are at an all-time low, which creates a strong environment for those looking to purchase a property with a loan. But what about those with an existing mortgage? Homeowners looking to unlock equity in their properties might be wondering whether low-interest rates create a favourable moment for them to remortgage.
Mortgage interest rates have dropped significantly over the last decade. The all-time high of 3.87% in Q2 2010 has fluctuated since. Notable high points include Q4 2017 when they reached 1.98% and 2019 when they hit 2.11%, but they soon fell again. Indeed, the overall trend has been a downwards one and, as it stands at the time of writing, the interest rate is 0.1%.
The current state of play
The UK economy is recovering from the pandemic at a faster rate than expected by the Bank of England. The country seems to have avoided a double-dip recession and while unemployment is still low and retail sales sluggish, there is hope on the horizon. With the (so far) successful deployment of COVID-19 vaccines, we could hope to see the economy start to open in Q2 and Q3. Government-backed furlough schemes and high levels of household savings mean that the public’s spending power is expected to be quite high. This will be a welcome boost for retailers who have struggled with one of the worst periods on record.
The property market has been resilient in 2020, bolstered by the stamp duty holiday the government launched in Q2 2020. In the March 3 budget, the government announced an extension to this fiscal break, giving the market further traction. The savings buyers could make will see continued demand for property and could drive up prices.
The BoE made two interest rate cuts to just 0.1% as emergency measures in 2020, the lowest amount ever. They said they would seek to keep rates above zero and not allow them to become negative. While this is a temporary measure, it’s unlikely we will see them rise quickly until the economy opens in June. Some analysts have even predicted we will close the year at 0.08% - a figure predicted to remain in 2022.
What does this mean for those wanting to remortgage?
If you are looking to remortgage your home, you might be wondering what these historically low-interest rates mean. Generally speaking, it’s a good idea to consider refinancing when rates are low. This means you can benefit from lower rates on your mortgage, potentially for longer. Of course, when rates do increase eventually, yours will too; but why not make the best of the situation for the next few years?
The first step is to make sure you know how much your house is worth. Demand for properties is currently increasing and this is leading to an uptick in prices, so it's possible that the value of your home has gone up, too. Comparing similar properties in your area, and looking at historical trends while noting your property’s value is an important part of your decision process.
For the next 18 months, it seems that interest rates will remain below 0.1%. This means buyers and remortgagers can enjoy beneficial rates on financing in the medium-term. The first thing to do is to make sure you know the value of your home, and from there, figure out if it's something that will benefit your family's goals.