In recent years, homeowners have seen the value of their property rise significantly, thanks to a booming real estate market. At the height of the Covid-19 pandemic, house prices had reached a 10-year peak. However, with the UK’s rising cost of living crisis, and the real possibility of an upcoming market downturn, many people are taking proactive measures to protect themselves against the risk of falling house prices, such as refinancing on their mortgages and working to increase equity in their homes – read on to find out more.
Refinancing with a Fixed-Rate Mortgage
With house prices set to fall even worse than feared in 2023, property owners are turning to mortgage refinances as a way to protect themselves. By refinancing their current mortgage to a fixed-rate offer, the interest rate remains the same throughout the life of the loan, which provides homeowners with certainty and predictability.
This means that even if house prices fall, the homeowner’s monthly mortgage payment will remain the same, and they will not be impacted by any increases in interest rates. While this doesn’t alleviate the challenge of a drop in property value, it does mean that these individuals are facing a reduced hit to their monthly bank statements and feeling the pinch a little less.
Increasing Equity in the Home
Another way that homeowners can protect themselves against falling house prices is by increasing their equity in their home. There are a number of ways that this can be achieved, but the most popular choices involve making extra payments towards the mortgage or renovating the home to increase its value. By doing so, homeowners are reducing the amount of their mortgage that is subject to fluctuations in the housing market, making it less likely that they will owe more on their mortgage than their home is worth.
Plus, renovations don’t always need to be costly – often, simple changes like swapping plain doors for glazed internal doors can make a big difference. Internal doors with glass let in more light, and can significantly improve the look of a home, which can add value in the eyes of a surveyor or potential buyer. There are a range of glazed internal doors on the market, too, so the possibilities for homeowners are endless.
Renting Out the Property
If a homeowner is concerned about the risk of falling house prices, they can also consider renting out their property instead of selling it during an economic downturn. By renting out the property, the homeowner can generate income from the rental payments, while still maintaining ownership of the home until the housing market recovers. This strategy can also be beneficial for homeowners who are relocating, but are in a position to keep their existing property for a while, and so may not want to sell up immediately.
Finally, some homeowners are diversifying their investments in a bid to protect themselves from falling prices – this means investing in a range of assets, such as stocks, shares, and real estate, rather than just relying on the value of their home. By doing so, they can spread their risk across a range of assets and reduce their exposure to fluctuations in any one market.
While the prospect of falling house prices can be daunting for homeowners, there are a number of strategies that they can use to protect themselves against this risk. By refinancing with a fixed-rate mortgage, increasing equity in their homes and diversifying their investment portfolios, homeowners are positioning themselves to weather any potential market downturns and come out on top in the long run.