Is it time to fix your mortgage?

The Bank of England's monetary policy committee (MPC) has spoken and, as expected, it has declared an increase in the base rate to 4.75%. If past performance is anything to go by, lenders will be quick to pass on the increase to borrowers. And with most commentators expecting further increases before the year is out, some borrowers may be considering moving to a fixed-rate deal. But would it be a wise move?

If your prime concern is to pay the lowest rate each month, and you want to be free to move mortgages once any special offer period is over, then probably not. "After a base rate increase you often find fixed rates become premium priced products," says Rob Clifford, managing director of broker Mortgageforce.

The prices of fixed-rate mortgage deals often spike after a base rate rise, because lenders, like everyone else, are uncertain how the rise will affect the market - and their margins. So they put the prices of their deals up while they assess the situation, to ensure they are not selling cheap deals they can't afford.

Most experts expect further rises this year and next, and lenders have already factored this in. Which explains why, before this morning's decision, fixed rates were already above 4.75%. For example, Nationwide Building Society anticipates another rise in November, while Paul Fincham, spokesman for Halifax, says: "We expect the MPC to raise rates further over the coming months, with bank base rates ending the year at 5%." Fund management group Henderson predicts the rate will stand at 5.5% by June next year.

As things stand at the moment, fixed rate deals are just not that cheap when compared with other mortgages. There is a big difference between discount mortgages, which fluctuate but offer a discount of a set percentage off the lender's standard rate of interest, and fixed-rate deals. Prior to today's decision, one of the top two-year fixed rate mortgage was a clear 1% more expensive than comparable discount mortgages. NatWest offered a rate of 5.19% fixed until 30 September 2006, while Abbey offered a two-year discount starting at 4.19%.

Abbey is almost certain to pass on the 0.25% rise, but even at 4.44% there is still room for three quarter-percent increases before the discount rates are on a par with fixed. And that means the discount deal still has lower monthly payments. On a ?110,000 interest-only mortgage arranged over 25 years a rate of 4.44% means repayments of ?407 a month as opposed to ?476 on a rate of 5.19%.

Another option is capped rates, where, as the name suggests, the rate you pay is capped. It can go down if interest rates go down, but it can't go above a certain level. In theory, these deals should offer a happy medium, but in fact they are also looking expensive. The cap on Giraffe Mortgages' best-buy deal is 5.59% for two years, for example, while the current rate you actually pay is 5.29% - and likely to increase following this morning's announcement. So unless you think rates are going to fall during the two-year period, you'll be paying over the odds for security you could get at a lower price on a fixed rate.

While fixed-rate deals are not looking so cheap at the moment, there could be good news ahead for anyone looking for a lower price on a fixed deal. Mortgage broker Charcol believes the price of fixed rate mortgages might have peaked. Indeed, a number of lenders have already reduced the cost of their deals in recent weeks.

Cheltenham & Gloucester, for example, has cut its fixed rates across the board. The rate on its two-year deal for people moving home is down from 5.79% to 5.59%, and its five-year rate for those remortgaging is down from 6.24% to 5.99% (the maximum you can borrow on both loans is 90% of the value of the property). Meanwhile Nationwide this week shaved 0.10% off its two, three and five-year fixes. If this trend continues, or if competition acts to drive prices down, we may see a spike in prices in the immediate aftermath of today's decision, followed by cheaper fixed rate deals to come.

Of course, if you are trying to decide what to do about your mortgage, there is no cut and dried answer. Whether or not you should opt for a fixed rate deal now to protect yourself from further increases in interest rates comes down to your own circumstances: "In terms of whether now is the right time to fix or not, this really does have to be personal choice, rather than a bet on interest rate movements," says a spokesperson for Nationwide.

"The compelling reason for choosing a fixed rate should be the need for certainty about monthly mortgages over time." If what you want is the cheapest monthly repayment in the short term, then there are lower interest rates to be found among the discount deals. But if an increase in the interest rate on your current mortgage would leave you struggling to cope financially, then that's a strong argument for fixing now.