Money: The doors are open if you want a lock-in

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The Independent Online
Northern Rock's decision to reduce its home-loan rate is good news for mortgage borrowers everywhere and not just for customers of Northern Rock. It means the upward pressure on mortgage rates has eased and that the next move has been postponed, at least until the summer.

The Newcastle-based society, which is converting to a bank, decided last month to show its political savvy by raising its lending rate by half a point, anticipating a further quarter-point rise in base rates.

But Northern Rock reckoned without the heavyweight stature of the Chancellor, Kenneth Clarke, who has successfully resisted pressure from the Governor of the Bank of England for a further rise in base rates right away. The Chancellor has argued that the economic recovery is still under control and that the 15 per cent rise in the value of the pound over the past six months is as effective, if not more so, in reducing the cost of goods and services than any rise in rates.

Markets now accept his argument that, barring an emergency, interest rates and therefore mortgage rates will not go up until after the election on 1 May. After that it will almost certainly be a new Chancellor who takes the decision. But any Tory Chancellor would not want to risk claims by Labour of having won the election on a false prospectus - by raising interest rates at once. And if it is Gordon Brown who finds himself in 11 Downing Street and he puts rates up immediately, the Conservatives would surely claim that it was a sign of the market's lack of confidence in Labour.

Even if a Labour government decides to raise interest rates as part of an emergency Budget, it could be mid-June before there is a chance to put up base rates and trigger a mortgage rise without accusations of sharp practice.

Northern Rock is the only society to be forced to cut its variable mortgage rate, but several societies have recognised the signals by introducing cheaper fixed-rate mortgage offers. These new rates show a wide range of offers and an equally wide range of conditions.

Alliance & Leicester has cut its two- and three-year fixed-rate mortgages by 0.20 per cent to 5.65 per cent and 6.85 per cent respectively, and brought its five-year fixed-rate down by 0.36 per cent to 7.74 per cent. Alliance & Leicester is not alone in reducing its fixed-rate offers. West Bromwich BS has just introduced a three-year fixed rate of 6.45 per cent and a five-year rate of 7.35 per cent. First Mortgage is lending money fixed for four years at 6.99 per cent, and Chelsea Building Society has launched a five-year fixed-rate mortgage at 7.49 per cent.

Northern Rock itself is offering five-year money at 7.29 per cent, which, according to MoneyFacts, is the best buy in this sector of the mortgage market. All these five lenders demand penalties if borrowers redeem their fixed-rate mortgages and go elsewhere within six years.

Cheltenham & Gloucester's two-, three- and five-year fixed-rates launched last month are at 7.29, 7.99 and 8.69 per cent. These figures are significantly higher than Northern Rock's, but C&G does not charge valuation fees or mortgage indemnity premiums. It does not link mortgage offers to acceptance of tied insurance or even charge redemption fees for borrowers who want out within six years.

In all these cases there is one common factor. The longer the period of your fixed rate, the more you have to pay, a fact consistent with market expectation that mortgage rates will tend to move upwards over the next five years.

But the trend is less clear than it was in December and anyone wanting a mortgage or remortgage at the moment is advised to look around and check terms and conditions.

Meanwhile the Halifax, conscious of the huge tide of business, including mortgages as well as money on deposit, that will flow as soon as current customers have got their hands on their bonus shares, has started playing the incentive game.

Home movers, including existing Halifax borrowers as well as potential new business and all first-time buyers, are being offered four 1 per cent cashbacks, phased over the next two years, if they take the plunge with a new Halifax mortgage.

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