Be quick for a fix

Homebuyers in search of a cheap fixed-rate mortgage have only a few days to land a deal before lenders hike their interest rates.

A rush of mortgage lending in the last month and the threat of an increase in the Bank of England base rate has pushed lenders to raise rates across the board. Only a handful of lenders have resisted the trend. Mortgage brokers believe the last few lenders to keep their rates low will fall into line next week and raise interest rates.

May proved to be a bumper month for mortgage lending. A fall in base rates combined with the start of the traditional house buying season saw the value of loans from banks and building societies jump by almost a quarter on the same month last year. One mortgage broker said mortgage companies were suffering "lending fatigue" and were pushing up rates to dampen demand.

Lenders are also revising their cheap fixed-rate deals upwards in the expectation of rising base rates. Consumers are spending more on the high street, much of it on credit cards. Before the shopping spree pushes up inflation the Bank of England is expected to make credit more expensive with one or two 0.25% rate rises in the second half of the year.

General Motors subsidiary GMAC is one of the few lenders to stick with its sub 5% fixed rate deal, says London & Country Mortgages adviser David Hollingsworth.

"It is a measure of how jittery the lenders are that most are pulling the deals that were popular last month and waiting to see what happens to rates before coming back with revised deals. Those that have, like the Portman Building Society, have increased rates considerably. The Portman, which had a five-year fix at 5.49% month ago, has increased it twice so it now stands at 5.99%."

The GMAC deal gives a 4.99% fixed rate until October, 2003 for loans up 75% of the property's value. It carries a £295 arrangement fee and customers must pay for a valuation and legal fees.

Britannia Building Society matched the GMAC deal until a fortnight ago when it raised the rate to 5.49%, which Mr Hollingsworth points out is still a cheap deal compared to only a few years ago.

Sally Laker, a spokeswoman for broker Mortgage Intelligence, says the Halifax has a 5.5% loan fixed until October 2003 for homebuyers and a 5.75% deal for remortgagers. A £195 arrangement fee, legal fees and valuation costs must also be paid.

Halifax waives these fees for customers who want to sign up for its 5.05% discount deal, which until last week was offered as a tracker following the ups and downs of the Bank of England base rate. Now it follows the ups and downs of the Halifax variable mortgage rate which gives the lender greater control over the rate it charges. Remortgagers must pay 5.3%.

Capped deals are similarly costing more. Ms Laker points to the Woolwich which offers a 5.69% cap until September 2003. Customers must pay a £245 arrangement fee, valuation fee and legal costs.

While many homebuyers will seek out the security of fixed and capped-rate deals, they now average more than 0.5% above discount rate deals and offer poor value.

These products were devised when interest rates moved wildly and homeowners on variable rate mortgages were hit hard.

Chancellor Gordon Brown's statement this week that he intended to be cautious and considered in his approach to the euro is likely to mean that interest rates will generally remain steady.

A homebuyer opting for the Halifax discount deal would need to see three quarter point rate rises before they start to lose out to a fixed rate deal. Most analysts believe rises of this magnitude won't happen and if they do, will be reversed next year.