Nationwide ups the cost of a fix

Nationwide building society this week became the latest lender to withdraw cheap fixed-rate mortgages and replace them with higher-rate deals following moves in the money markets. It is pushing the rate for a two-year fixed rate mortgage up from 4.49% to 4.89% for borrowers who can only afford a 10% deposit or less. Its three-year rate rises from 4.79% to 5.19%, while its five-year peg moves from 4.99% to 5.39%.

The rises will come as a surprise to many borrowers, as they follow a quarter-point fall in the Bank of England base rate to 3.5% from 3.75% in July. But they reflect a sharp upward movement in UK money markets, which over the past month have begun pricing in a potential rise in base rate. Ray Boulger of mortgage brokers Charcol says: "As a result, most fixed rates are already looking expensive when compared to their tracker and discount counterparts." But although the market is factoring in a rate rise before the end of the year, many lenders remain optimistic.

George Johns, economist for The Woolwich says: "We would not yet rule out a further cut in rates before the end of the year, particularly if the recent buoyancy of the consumer and housing markets fades away." Fixed rates will remain popular for anyone wanting the security of fixed monthly payments, although home buyers need to examine deals carefully.

The current best two-year fix is offered by Britannia building society at 3.49%. However borrowers must stump up a £299 fee. Next best is Portman's 3.59% with a £300 fee. For discounts, Alliance & Leicester and Abbey National currently offer the best deals.