Home loans: the summer sale is now on

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The Independent Online

Despite mounting evidence of a slowing economy, officials have held off, maintaining the base rate at 4.75 per cent for another month - prompting a slew of analysts and economists to predict that next month would finally see rates notched downwards.

Eleven months at the same rate doesn't make it any easier for home loan borrowers facing a decision over whether, for peace of mind over monthly budgeting, to fix their mortgage rate or not.

Fixing now for two years just as rates head down could be costly. However, those pondering a fix can now choose from a fresh crop of cheap deals.

Swap rates - the cost to lenders of borrowing from each other that determines the cost of fixed-rate deals to customers - fell by 0.25 percentage points last week.

This is a considerable drop after earlier rises this year, according to Purely Mortgages mortgage broker.

Some lenders have reacted by cutting their fixed rates, says Purely's spokesman, Ian Giles: Abbey, the Portman building society and the Halifax have all slashed offer prices.

For remortgagees, competitive deals on a two-year fixed-rate include Alliance & Leicester (at 4.48 per cent) and Nationwide (at 4.49 per cent), Mr Giles says.

For a five-year fix, Portman building society offers the best deal at 4.5 per cent.

If you're unsure about which to choose, he suggests a tracker mortgage deal that guarantees to fall with the base rate.

But in case rates rise instead, you "must be able to afford an increase of perhaps 0.25-0.5 [percentage points] in the next two years" he warns.

He recommends A&L's two-year tracker deal, at 4.59 per cent, or Nationwide's two-year deal at 4.74 per cent.

Ray Boulger from John Charcol broker says that lenders are still playing catch-up with their fixed rates. "With the [base] rate looking increasingly likely to fall below 4 per cent next year, the cost of fixed rate mortgages has further to fall."

For borrowers keen to fine-tune the timing of their purchase of a fixed-rate mortgage, it is still too early to jump in, he says.

First-time buyers or anyone stretching themselves with their mortgage should still be looking to fix to guarantee set monthly premiums, he stresses.

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