Discounted mortgages can offset rate rises

Home buyers paying a variable rate of interest who believe last week's rise in base rates will herald a new round of increases to their monthly bills should be switching to a discounted rate, according to a leading broker. Ian Darby, of mortgage broker John Charcol, said the advantage of this move was that wherever variable rates went in the coming months, borrowers would still be paying less.

He said: "People who have taken out fixed mortgages usually have hefty redemption penalties to pay if they want to move out of them.

"But most people who are currently on variable rates pay little or no redemption penalty. On a £50,000 mortgage, the average cost of switching to a discounted rate is about £850, which is about 1.6 per cent of a mortgage.

"If a discount greater than that is available for longer than a year, anyone switching is gaining on the deal."

Bank of Ireland is offering a discounted 5.5 per cent rate to April 1997, available on maximum mortgage advances up to 90 per cent.

Northern Rock is discounting its variable rate back to 2.49 per cent until March 1996, with a cashback incentive of up to £400.

Nationwide offers a seven-year discounted mortgage, promising to stay 1 per cent below the variable rate throughout that time.

Capital Home Loans, a direct lending company, has a range of fixed rates, including two years at 7.24 per cent, three years fixed at 8.74 per cent and five years at 9.1 per cent. A further 0.25 per cent off is available to borrowers taking out CHL's buildings and contents insurance.

The base-rate rise has already had an effect on some savings rates. Save & Prosper is to increase the rates it pays to depositors.

Clients with £10,000 or more in a Premier or Classic account will receive an extra 0.5 per cent. S&P's Tessa variable rate will also go up, from 6 to 6.5 per cent.

However, Save & Prosper says it will not be putting up the rate of interest on its Robert Fleming Visa and Mastercard credit cards, which remain fixed at 14.6 per cent. There is also an annual £12 arrangement fee.