Could remortgaging help you beat the cost of living crisis?

Millions of families are seeking strategies to navigate the current economic turbulence

The headlines are filled with reports of the escalating cost of living crisis. The surge in inflation, climbing interest rates and skyrocketing energy prices create a financial strain that even the most budget-conscious households can’t ignore.

Many families will seek strategies to navigate this economic turbulence and regain control of their finances. Amidst all the uncertainty, there’s a beacon of hope – remortgaging.

Taking out a mortgage in later life to bypass Inheritance Tax

Over-60s consider passing on assets or property to family members

As the population of over-60s in the UK increases, more and more are considering taking out mortgages to bypass Inheritance Tax (IHT). This strategy could reduce a potential IHT liability when passing on assets or property to family members after death if appropriate.

IHT is a levy on the total value of an individual’s estate after they pass away, inclusive of all assets – property, possessions and cash. The typical IHT rate currently stands at 40%, applicable only to the portion of the estate exceeding the tax-free nil-rate band threshold of £325,000.

Spike in mortgage costs

First-time buyers spend almost £200 more monthly on their mortgage payments

Following the mini-budget announcement by the Liz Truss government in September 2022, the housing market experienced a period of turbulence. This resulted in a spike in mortgage costs, with the average first-time home buyer paying a hefty £1,218 monthly on their mortgage last October.

The budget, prepared by former Chancellor Kwasi Kwarteng, included several unfunded tax cuts and spending commitments. It led to uncertainty and prompted many lenders to withdraw their mortgage products from the market. This action and predictions of rising interest rates contributed to the increase in mortgage costs.

Considering buying or maintaining a home?

Homeowners anxious about the issue of affordability in current economic climate

Homeowners in the UK are continuing to face a growing economic challenge with high interest rates. With an already expensive housing market, many residents fear that affordability is the biggest challenge they face when considering buying or maintaining a home.

The average UK house price in February 2023 had fallen to £257,406, while in February 2022 it was £260,230, according to Nationwide. But even with the slight fall in property values it is still increasingly difficult for many potential buyers to afford a home of their own, and with high interest rates due to inflation concerns and economic uncertainty, these issues are only expected to continue.

Getting a mortgage with bad credit

Obtaining a mortgage becomes more challenging and costly

When individuals mention having bad credit, they often refer to possessing a low credit score or negative elements in their credit report. These factors can make obtaining a mortgage more challenging and costly. Reasons for a poor credit rating may include late or missed payments, county court judgments (CCJs), or numerous credit applications within a short period.

Additionally, if you’ve never borrowed money before, your lack of credit history could result in a low credit score. So when applying for a mortgage, your credit score is one of the key factors that lenders consider. A low credit score can make it difficult to secure a mortgage, and even if you are approved, it could mean higher interest rates and less favourable terms.