You won't find the best home loan in a bargain basement

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The Independent Online

Shopping in the January sales can mean getting your hands on a designer dress or a digital camera at a fraction of its usual price. So will browsing through "sale" mortgages yield bargains for homeowners?

Banks are copying high-street retailers and trying to lure bargain hunters by slashing prices on mortgage fees and interest rates. For example, Yorkshire Bank has lopped £700 off a mix of arrangement, legal and valuation fees; NatWest has cut arrangement fees by up to half; and HSBC has a six-month fixed loan deal at 2.69 per cent - down from its usual 5.39 per cent.

But borrowers are being warned not to be tempted by such offers, especially when better value lies elsewhere.

"The flashing sale signs entice customers but there can often be myriad conditions," says Louise Cuming from the price-comparison service Money-supermarket.com.

As an example, she cites Yorkshire Bank, which offers the saving only to borrowers who switch to its offset mortgage.

At NatWest, the small fee savings won't turn "mediocre" loans into market-leading deals, warns David Hollingworth from broker London & Country (L&C).

"As with any sale, ask yourself whether this is what you really need," he says.

The HSBC offer will suit only those happy to take a very short-term fix and prepared to switch their mortgage as soon as it comes to an end, says Melanie Bien, associate director at broker Savills Private Finance. And there's another catch: borrow more than £100,000 and you pay a higher rate of 5.5 per cent on any amount above this.

"It is important to work out the total cost of the mortgage," she adds, "and not get seduced by gimmicks."

For those seeking the certainty of a fixed-rate deal - and who can afford to hang on for a month or two - rates have been getting steadily cheaper since mid-December, says Nick Gardner from broker Chase de Vere Mortgage Management. In anticipation of a base rate cut, he predicts: "Two-year fixes could fall to around the 4 per cent mark in the next few months."

Cheltenham & Gloucester and Northern Rock, for example, have recently reduced their rates, prompting speculation that other lenders will follow suit.

But Mr Hollingworth points out that lenders are in no great rush to respond. "The best fixed-rate deals have been around for some time, and are still worth having," he says. "If you're paying your lender's standard variable rate (SVR), there's no point waiting for a slight drop when you're already paying 2 per cent too much."

Cheap deals now on offer include a two-year fix at 4.3 per cent from Portman building society, and a two-year fix at 4.38 per cent from Yorkshire building society. The best five-year deal, says Mr Hollingworth, is from Newcastle building society at 4.54 per cent.

As a guide, the bigger your mortgage, the better value you will get by opting for a loan with a low rate of interest, says Ms Bien. For those taking out smaller loans, the fees charged by the lender become more important.

Paul and Sharon Holloway from Kent sensibly ignored the home loan "sales" when they recently remortgaged. Their new deal saved them £300 a month.

"We had been on a five-year fix with Bristol & West that tied us to a further year on an SVR of 6.84 per cent," says Sharon, 39, a full-time mature student.

"This was expensive so we began looking for a better deal."

After consulting an adviser at L&C, the couple switched to a two-year fixed-rate loan with Abbey at 4.69 per cent.

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