Remortgaging During a Recession: What to Know

How a Recession Affects the Mortgage Market

During a recession, the Bank of England typically cuts the base rate to stimulate the economy. This tends to bring mortgage rates down, which can create favourable conditions for remortgaging. However, the picture is not always straightforward. Lenders may tighten their lending criteria during uncertain economic times, making it harder for some borrowers to qualify for the best deals.

A recession can also affect property values, which may fall as demand weakens and fewer buyers are active in the market. A lower property value increases your LTV ratio, which could push you into a less favourable rate bracket or, in extreme cases, into negative equity. The combination of lower rates but higher LTV can create a mixed situation for remortgagers.

Lender behaviour during recessions is also worth understanding. While base rate cuts tend to bring down mortgage rates, lenders may add larger margins to protect themselves against the increased risk of borrower default. This means mortgage rates may not fall as much as you might expect based on base rate cuts alone.

Tighter Lending Criteria and Affordability Checks

During economic downturns, lenders become more cautious about who they lend to. Affordability assessments may become stricter, with lenders stress-testing your ability to pay at higher rates and scrutinising your income and outgoings more carefully. If your employment is in a sector particularly affected by the recession, this could make your application more challenging.

Self-employed borrowers may face additional scrutiny, as lenders may view self-employed income as less stable during a recession. You may be asked to provide more documentation or demonstrate a longer track record of stable earnings. If your business income has dipped, this could affect how much a lender is willing to offer.

If you are concerned about passing affordability checks, a product transfer with your existing lender may be the easiest route. Many lenders do not require a full affordability reassessment for product transfers, which means your current circumstances are less likely to be an obstacle. This can be particularly helpful if your income has been affected by the recession.

Protecting Yourself During Economic Uncertainty

If your mortgage deal is ending during a recession, the priority should be securing a new deal that you can comfortably afford. A fixed rate mortgage provides certainty over your monthly payments, which is especially valuable during uncertain times. Even if tracker rates look tempting because they benefit from base rate cuts, the predictability of a fixed rate can provide peace of mind.

Building up a financial buffer is also wise during a recession. If possible, maintain an emergency fund equivalent to at least three to six months of mortgage payments. This protects you against unexpected events such as job loss or reduced income, which are more likely during economic downturns.

If you are already experiencing financial difficulties, do not bury your head in the sand. Contact your lender as soon as possible — they are required to treat you fairly and may offer forbearance options such as payment holidays, reduced payments, or temporary interest-only arrangements. Organisations like StepChange and Citizens Advice can also provide free support.

Opportunities That Recessions Can Create

While recessions bring challenges, they can also present opportunities for well-positioned homeowners. If the Bank of England cuts rates significantly, remortgaging from a higher fixed rate to a new lower rate could produce substantial savings. If you have strong equity, stable employment, and a good credit score, you are in a prime position to take advantage of competitive deals.

Recessions can also be a good time to switch to a repayment mortgage if you are currently on interest-only. Lower rates mean the increase in payments from switching to repayment may be more manageable than during a higher-rate environment. This helps build equity and reduces your overall debt, strengthening your financial position for the future.

For homeowners who have been overpaying their mortgage and built up significant equity, a recession may offer the chance to remortgage at a very low LTV with excellent rates. The combination of a lower balance and competitive rates can dramatically reduce monthly costs, freeing up cash for savings or other priorities.