Winners, rush for your fix

Britain's 11 million mortgage borrowers are the big winners from low interest rates. Lenders rushed to cut their variable rates last week after the base rate fell to 4 per cent. Home loans are at their cheapest since 1955 and you can now fix your loan rate at less than 5 per cent for five years.

Ray Boulger of mortgage broker John Charcol says: 'This is the first time I can remember that we have had sub-5 per cent fixes for five years or more available at 95 per cent [loan to value ratio].'

Boulger and some other commentators think there may be a further cut in the bank base rate but point out that fixed rates generally bottom out before variable rates.

Patrick Bunton of London & Country Mortgages says: 'I like the look of any long-term rate below 5 per cent.'

Borrowers seeking a low fix should consider locking into deals coming to the market now. Economists expect the base rate to begin rising again next year, perhaps to 5 per cent by the end of the year. This would suggest a standard variable mortgage rate of 6-6.5 per cent. Rates could rise further later, peaking at around 7 per cent. This would lead to mortgage rates of 8 or 8.5 per cent. The picture beyond the end of next year is uncertain because it is not known whether Britain will join the single currency.

Mortgage broker John Charcol is offering a five-year fixed-rate deal at 4.99 per cent. There are hefty redemption penalties if you bail out early, however: 5 per cent if the amount is repaid before 1 December 2006. There is a £500 arrangement fee to pay the lender, Portman Building Society, and a £49 fee to Charcol. Derbyshire Building Society also has a 4.99 per cent five-year deal but this requires a 25 per cent deposit. The fee on this is £295 (£195 for Derbyshire members). Early redemption penalties start at 5 per cent, falling by 1 per cent a year.

Standard Life Bank is offering seven-year deals at 5.69 per cent on 90 per cent loans and 5.89 per cent on 90 to 95 per cent mortgages. Redemption penalties start at 10 months' interest in the first year.

If you want to take advantage of low rates to speed up repayment of your loan you should avoid loans with penalties. Some lenders, such as Nationwide and Abbey National, are allowing you to overpay a certain amount on fixes without penalties.

To overpay a loan, ask your lender which is the most efficient method. Overpayments may not be credited until the end of the year so it would be better to pay a lump sum. If you have a direct debit payment you will probably have to ask the lender not to change it automatically. This may also be a good opportunity to increase your mortgage if you want to improve your home.

With credit cards, personal loans and overdrafts, the impact of the base rate cuts will be less dramatic, if at all. However, if you discard costly credit cards from high street banks you can borrow for limited periods at no cost. Capital One Bank, internet bank Egg and Abbey National are all offering introductory deals at 0 per cent on new purchases. If you want to repay existing debt, Egg is offering 0 per cent for six months and the Tesco card is charging an annual percentage rate of 1.5 per cent until 1 July 2002.

Personal loans are available at rates as low as 8.5 per cent for £5,000 from Northern Rock but rates are higher for smaller loans and it may be better to finance smaller purchases with a cheap credit card, provided you are disciplined in clearing the debt.

Overdraft rates tend not to move with the base rate, although competition has helped to force them down and the more competitive accounts will lend on overdrafts at less than 10 per cent.

Abbey National's internet bank Cahoot charges 8 per cent for borrowers with good credit ratings. Beware going further into the red than your bank has agreed; unauthorised overdraft rates can still be more than 30 per cent.