Get yourself in a fix before it's too late

Homeowners who have not yet switched to a fixed-rate mortgage should get their skates on. Economists expect at least one more interest-rate hike this summer, and possibly a second by Christmas.

Last week's 0.25 per cent rise - the second in as many months - is expected to start cooling house price increases over the next couple of months as buyers and remortgagers rein in their borrowing. But Martin Ellis, chief economist at the Halifax, says: 'We think there will probably be another 0.25 per cent rise by August and that the Bank of England base rate will be at 5 per cent by the end of the year.'

Barry Naisbitt, chief economist at the Abbey, also predicts another 0.25 per cent rise, probably in August to coincide with the publication of the latest inflation figures. But while Ellis thinks the base rate will peak at 5 per cent, stay at that level for most of next year and then gradually start to fall, possibly back down to 4 per cent, Naisbitt expects rates to go up to 5.25 per cent in the first half of next year, staying at that level for six to nine months and then falling by about 0.5 per cent.

Neither expects the Monetary Policy Committee to increase or decrease the base rate by more than 0.25 per cent at a time, for fear it will have too dramatic an effect on house prices and the economy in general.

Whoever is right, it seems unlikely that borrowers will be able to secure mortgage rates as low as those available right now for at least 18 months.

Independent mortgage broker Chase de Vere is recommending that borrowers on tight budgets fix their mortgage rates for just two years. Chase de Vere's Simon Tyler says: 'Five-year fixes are disproportionately expensive, costing at least 5.3 per cent. As most economists expect the base rate to peak and start falling in the next 18 months to two years this is not very good value.'

Chase de Vere recommends an own-label two year mortgage, supplied by the Co-op Bank, which is fixed at 4.79 per cent (application fee £395). Borrowers who prefer to take their chances on further rises may prefer a Co-op tracker loan set at 0.07 per cent below the base rate for two years (application fee £399). This produces a rate of 4.18 per cent, but will rise to 4.43 per cent when last week's rise is factored in. Neither loan has redemption penalties at any time, enabling the borrower to switch if better mortgage rates become available.

Chase de Vere Mortgages 0800 358 0538.