Fixed rates on the increase for housebuyers

Choosing between fixed and discounted variable-rate mortgages is still "the $64,000 question" for home buyers, accor- ding to Andrew Frankish of broker Mortgage Talk.

But with lenders introducing higher fixed rates, more buyers are opting for cheaper discounted deals. Some lenders, including Nationwide, the Woolwich and Abbey, notched up the price of their fixed-rate deals last week.

Although the Bank of England's 4 per cent headline base rate hasn't moved since February, these lenders are passing on the higher cost of "swaps" - inter-bank deals based on predicted long-term interest rates, which have risen.

Rate increases varied from 0.1 per cent at Northern Rock to 0.3 per cent at the Woolwich. Abbey raised its two-, three- and five-year rates by 0.1 per cent; its two-year fixed rate for a 75 per cent loan-to-value deal rose from 4.84 to 4.94 per cent.

The cost of a two-year fix at the Woolwich rose from 4.99 per cent to 5.29 per cent.

Despite the higher cost, such loans are likely to become more popular if interest rates rise as anticipated, says Mr Frankish.

A glance at our tables reveals that the cheapest two-year fixed-rate deal is offered by Chelsea building society at 4.42 per cent. But this has a high, £640, arrangement fee.

One of Mortgage Talk's preferred deals is Northern Rock's two-year fixed-rate deal at 4.69 per cent. It offers up to £1,000 cash back and has no indemnity charge, but you face a hefty £595 arrangement fee.

Mr Frankish argues, however, that such a deal should appeal to first-time buyers because the fixed rate will allow them to budget and keep track of their spending.

Mark Hemingway, a spokesman for the Halifax, says: "Fixed rates are not at their cheapest: the lowest rates were last year and they have probably risen by half a percentage point since then. But historically, they are not that high."

As a percentage of new mortgage business, fixed-rate loans have fallen steadily since August 2003, according to the Council of Mortgage Lenders. In February 2004, fixed rates made up only a quarter of all new mortgage business; eight months ago, the figure was 47 per cent.

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