Get a fix on the best rates

Playing on fears of a probable rise in interest rates after next month's meeting of the Bank of England's monetary committee, mortgage lenders are launching tempting cut-price and fixed-rate home loans.

The headache for housebuyers is that with a plethora of mortgage products on the market, finding the right deal is not easy.

And lenders seem to have decided that confusing customers is their route to riches. Novice homebuyers are most vulnerable because they tend to approach the building society or bank branch where they run their savings account, but these may not have the best deal.

Finding the best ways to balance the monthly repayments makes a big difference. Borrowers who pinch their household budget to meet their monthly payments should look for a fixed rate to avoid problems if interest rates go up. Current capped deals - which can disappear overnight - include a 6.25% cap from Newcastle building society until July 2002, a three-year deal from Woolwich at 7.29% and a five-year cap from Abbey National at 7.25%.

But, as ever, vigilance pays as banks and building societies are constantly updating their range of fixed-rate mortgage packages.

For existing homebuyers locked into fixed rates, remortgaging at a lower rate can be worthwhile, as each percentage point drop in the mortgage rate cuts around £63 a month on a £100,000 loan. To judge whether the time is right to opt for a fixed rate, first look at the movement of interest rates.

Economic soothsayers expect the Bank of England to raise rates at least once before banks' base rates gradually settle down to converge with lower levels in the EU. Many lenders now also offer special capped rate home loans under which borrowers benefit from falling rates but avoid any further rises in prevailing mortgage rates over prearranged lengths of time.

But if you are considering opting for a fixed-rate loan there are a few drawbacks to bear in mind when going for a fix or a cap.

A lender may inflict expensive compulsory insurance policies or upfront mortgage application fees, typically between £200 and £400, which are normally non-refundable. These can prove painful if your purchase falls through.

Finally, remember to budget for the risk that you may have to pay a much higher rate when the fixed-rate deal expires. Halifax is drawing first-time buyers into the housing market through a special deal fixed at 5.59% until December 31 2001.

And Lambeth Building Society is offering mortgages at 4.09% fixed for two years to first-time buyers with the usual 5% deposit, but they will have to stay with the lender for at least five years.