The Mortgage Clinic: 'Should we wait for a better fixed-rate deal?'

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The Independent Online

'Our two-year fix with A&L at 4.6 per cent ends in November and we've taken steps to fix a rate in advance. However, I've noticed that fixed rates seem to be falling. Are we foolish to book a fix now – we were quoted 7.07 per cent with one bank last week! – or should we wait? We think our LTV is roughly 85 per cent to 80 per cent.' SJ, by email

The storm clouds hanging over the British housing market continue to leave borrowers in the gloom, and the recent changes that you've noticed – mortgage rates creeping back down again – are just the latest twist in a febrile lending climate.

Blink and you'd have missed it last week: after months of inching upwards to an eye-watering 7.08 per cent – the highest for 10 years – the average cost of a two-year fix dipped to 6.96 per cent, according to financial analyst Moneyfacts.

Melanie Bien, of broker Savills Private Finance, says that swap rates – the rate at which banks lend to each other on the money markets – are dropping in anticipation of lower long-term interest rates. "Several lenders, including Nationwide, Halifax, Cheltenham & Gloucester and Abbey, have begun to lower their rates."

Last week, borrowers with an LTV of 80 per cent could get a two-year fix for 5.98 per cent with First Direct – albeit for a whopping £1,998 arrangement fee – but this still makes your 7.07 per cent two-year offer look horribly overpriced.

Your strategy, then, could be to apply to book a rate today at no cost and be ready to switch to a cheaper deal nearer the time if the circumstances stay more propitious, says Richard Morea of London & Country.

"You won't have to pay an upfront fee for the remortgage if, as many do, the lender offers either the option to add the fee to your overall loan, or for you to pay it at completion of the remortgage deal."

That way, you can ditch today's pricier deal for a cheaper future one at no cost; and if, by October, interest rates have gone back up again, you'll at least have a decent deal tucked away.

Where mortgage rates will be by then is anybody's guess, however. "I doubt that you will get anything much cheaper over the next two months, so I would advise playing safe and submitting an application now," says Ray Boulger of John Charcol.

In fact, if you're prepared to take a risk on rate, base-rate trackers offer better value at present, says Andrew Montlake at Cobalt Capital. "These are between 0.5 per cent to 1 per cent cheaper than fixed rates and – in the current market conditions – it's unlikely that rates will increase dramatically in the short- to medium-term."

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