Don't get yourself in a fix - yet

Homeowners who have been waiting for interest rates to start dropping before taking out a fixed-rate mortgage should hang on a few more weeks.

After months of rising rates, lenders invigorated the market last week with the offer of mortgages fixed at just below 5 per cent for five years, the lowest rates available since last June. But mortgage brokers believe many more deals are in the pipeline, and some could be cheaper.

Simon Tyler of London broker Chase de Vere Mortgage Management says: 'It will pay to hold fire for a couple of weeks, because fixed-rates will certainly come down in price. They have already fallen substantially. We are sure to see more deals in the next few weeks.'

David Hollingworth of Bath firm London and Country agrees that a few more deals are likely to come out, but warns: 'Don't linger on an expensive standard variable rate just in case a cheaper fixed rate comes out. You could end up paying more than you save.' (See below.)

Now that the base rate seems to have peaked, some borrowers may be tempted to opt for discounted mortgages in the hope that their mortgage rate will fall in line with any base-rate cuts. But Hollingworth says: 'We're not crystal-ball gazers. People should borrow a mortgage they feel comfortable with. If they are on a tight budget, they may feel safer with a fixed rate even though that might mean paying slightly more.' He points out that while discounts were about 1 per cent cheaper than fixed rates of the same length back in June, the gap has narrowed to about 0.1 per cent now, making the gamble less worthwhile.

So what are the best deals available right now? Alliance and Leicester and Newcastle have both launched five-year fixed rates at 4.99 per cent. The Alliance and Leicester deal carries a £395 fee and loans worth up to 95 per cent of the property's value (LTV) are available. The Newcastle rate is available on loans worth up to 90 per cent LTV and carries a fee of £345, although this increases up to a maximum of £1,000 for loans of more than £750,000. Neither of these deals carries early repayment charges beyond the fixed-rate period.

Leeds and Holbeck building society is selling five-year fixed-rate mortgages set at 4.95 per cent, worth up to 95 per cent of the property's value, but the application fee is a hefty £695.

Yorkshire building society is offering the cheapest two-year fixes - 4.69 per cent for those buying a home and 4.74 per cent for those remortgaging. The application fee is £495. Alliance and Leicester is next cheapest at 4.79 per cent for two years, with an application fee is £395.

If you are tempted by a discounted rate, Abbey is offering a two-year discount at 4.44 per cent. Alternatively, Chase De Vere is also offering a tracker at 0.06 per cent below base, giving a rate of 4.69 per cent. There is no arrangement fee, no legal fee and the valuation is refunded on completion. Although there are cheaper deals available, the fact there are no switching costs makes it attractive for remortgaging.

· Chase De Vere Mortgage Management, 0800 358 0538; London and Country Mortgages, 0800 373300

Standard rate carries hefty penalty

A borrower with a two-year heavily discounted mortgage needs to remortgage within 14 months of the discount ending to prevent all its benefit being wiped out by the higher standard variable rate.

Internet bank Egg has calculated that by holding onto the same standard variable-rate mortgage for the current average of five years, a homeowner pays £1,840 more interest than he would if he had a mortgage that is consistently 1 per cent above the Bank of England base rate (unsurprisingly, the rate that Egg charges).

Egg based its calculations on the lowest two-year discounted rate mortgages offered by eight of the UK's 10 biggest lenders, all of which have standard variable rates of at least 2 per cent above the base rate and which represent four out of every five discount mortgages sold in the UK today.

Egg spokesman James Thorpe says: 'There's nothing wrong with discounts. But if you are going to delay switching at the end of the discount period, check whether your lender charges a higher-than- average standard variable rate.'