Not too late to grab a good rate

Homeowners who did not remortgage over the last month have missed out on some of the lowest mortgage rates in memory. But mortgage advisers say it is not too late to lock into attractive deals.

Within hours of the first shots being fired in the second Gulf War, lenders were withdrawing cheap fixed-rate loans, claiming funding costs had increased because financial markets were betting the war would be short and interest rates would rise.

This increased the cost of the 'swap' rates that finance fixed-rate home loans.

Ray Boulger of mortgage broker Charcol said he could not see anything on the economic horizon to suggest a general rise in interest rates. But swap rates were determined by yields in Government bonds - gilts - and these had increased.

'Short-term rates have gone up more, by about three quarters of a point. It's an amazingly large rise in such a short time and from such a low level. Lenders who didn't fund in advance will be out on a limb.'

Woolwich, one of the first to reprice its fixes, raised its two-year fix from 3.59 per cent to 3.99 per cent. It will not launch fixed rates over other periods until it has a clearer idea of the direction of money market rates.

National Counties and Lambeth building societies also withdrew fixed-rate deals on Thursday.

Boulger pointed out that even at slightly higher prices, fixed rates would represent good value for many borrowers. 'If you want a fixed rate get it quickly, while there are still cheap deals around.'

He said that borrowers stretching themselves to afford a property should go for longer term fixes of between three and five years unless they knew they would get big pay rises.

Longer-term fixes might be scarce until lenders had a better picture of how the market was moving. But he recommended Alliance & Leicester's five-year deal, at 4.25 per cent, and Stroud & Swindon building society's, at 4.39 per cent.

Charcol has a deal over three years at 3.59 per cent, requiring an 85 per cent loan-to-value ratio and allowing up to 10 per cent of debt to be repaid in a year without penalty. Boulger said: 'I'm pretty confident it will be around until early [this] week but not much longer.'

Market observers believe that despite the rise in the cost of funds for fixed-rate loans, the bank base rate could still come down again next month. Economist Simon Rubinsohn, of stockbroker Gerrard, pointed out that inflation had picked up but consumer spending had slowed. 'We believe the diminishing contribution of the consumer to the economy reflects a range of more fundamental developments, including the trend in real incomes and the erosion of household wealth. Significantly, higher National Insurance contributions and the council tax increases have yet to bite.

Brokers expect a period of volatility in the market. Patrick Bunton of London & Country said: 'Hour by hour, lenders are pulling schemes and repricing.'

Nevertheless, it was still possible to borrow over five years at a fixed rate of 4.05 per cent, compared with the 4.51 per cent this would cost in wholesale markets at present. 'Rates are at, or close to, the bottom. Unless swap rates move back again these deals will be exhausted.'

London & Country is rec ommending a two-year fixed rate through Britannia building society at 3.29 per cent, a two-year deal from Alliance & Leicester at 3.59 per cent, a five-year deal from Mercantile building society at 4.19 per cent and a deal organised by London & Country at 4.05 per cent, fixed for five years.

Fixed rates have been particularly popular recently because rates have been low. But independent adviser The MarketPlace at Bradford & Bingley is promoting a variable rate deal that offers stepped discounts reducing in two stages until January 2009. There are no redemption penalties so borrowers could switch if they found better deals elsewhere during the term. The starting rate is 3.7 per cent, a discount of 1.95 per cent on the lender's standard rate. The discount falls to 0.99 per cent in January 2006. Valuation and legal costs are paid and there is a £200 cashback on remortgages.

Trump card?

Mortgage rates may be on the rise but credit card
companies are still launching 0 per cent deals.
Sainsbury's Bank is offering a card that will charge no
interest on purchases, balance transfers or cash
borrowings for a limited period.