Mortgage update: Deals help borrowers put of a fix

Nothing makes the gods of the property-owning classes laugh out aloud as when home-owners start making plans. Take the case of those borrowers who in 1995 figured taking out a five-year fixed-rate mortgage at 9.15 per cent - 2.2 per cent more than the prevailing rate of 6.95 per cent was the smart option.

Today the average variable-rate mortgage is back to 6.95 per cent, costing those unfortunate home owners an extra ?1,000 a year on a ?50,000 mortgage.

But if you are in this sad situation do not despair, the intense competition among mortgage lenders has prompted banks and building societies to set up customer retention units. If borrowers on unkind fixed rates approach their lender they will often offer them a different, cheaper deal.

Alternatively swapping lenders could be cost effective if the new lender offers "cashbacks" - an upfront payment to the borrower to tempt them to take a particular mortgage package. The cash payout can be used to pay off a penalty charge. John Charcol offers a five-year fix, pegged at 6.1 per cent with a 3 per cent cashback. And for borrowers who are handcuffed to uneconomical fixed-rate mortgages who now prefer a variable-rate mortgage, the Scarborough Building Society is offering home loans at 5.85 per cent which it says is the lowest variable-rate mortage in the UK, provided borrowers can put a downpayment of 10 per cent of the value of the house. Egg, the retail financial services arm of the giant insurer Prudential is offering variable-rate home loans at 5.99 per cent.

The message from the experts is that anyone who went into a fixed-rate deal more than two years ago should take time out to do some basic maths.

For example, someone paying 9.5 per cent on a ?30,000 mortgage would save about ?1,300 a year with a 4.7 per cent deal. They would probably have to pay a penalty of six months' interest at 9.5 per cent - also about ?1,300. They would therefore, recoup the price of the penalty in the first year of remortgaging. Such deals are available from some lenders, in the form of discounts of 2 to 2.25 per cent off their variable rate currently hovering around 6.95 per cent.

Borrowers who have been bitten once by the fixed-rate mortgage are understandably nervous about taking out another fixed-rate mortage. The matter is made more complex by the launch of the euro which is exerting a strong downward pressure on interest rates - even outside Euroland.

Several City analysts are predicting that variable-rate mortgages could hit the 5 per cent mark within a couple of years. Here the streetwise borrowers are opting for discount mortgages such as the deal from the Woolwich which trims 3.4 per cent off its standard variable rate of 6.99 per cent until Mayday 2001. Elsewhere, mortgage broker Exclusive Mortgage Direct offers a 2 per cent discount off its current base variable mortgage rate of 6.95 per cent lasting for the next five years, plus a cash sweetener worth ?250.

Borrowers opting for the capped-rate mortgage, such as the one from Britannia Building Society where the rate is set at 5.49 per cent for the next three years, could benefit from lower rates should the prevailing mortgage rates drift below 5.49 per cent during the three-year term.

The Norwich and Peterborough is wooing environment conscious home owners. Under the terms of its green mortage, borrowers get a discount of 2.25 per cent off its current variable rate of 7.2 per cent bringing the chargeable rate down to 4.85 per cent until December 31, 1999. And borrowers benefit from a free energy rating survey to spot home improvements that could save energy. The society will fund any environmentally-friendly home improvements at special rates with repayments spread over the term of the mortgage.