FEAR OF FINANCE

Short-term interest rates are still edging lower, but longer rates are starting to edge up. Interest rates offered on selected guaranteed income bonds have risen this week, according to brokers Baronworth; and annuity rates, which are driven by long-term interest rates, have increased again for the ninth week in a row, according to the Annuity Bureau.

This is welcome news to savers, but it has implications for borrowers. If you have been thinking of taking the plunge and fixing your mortgage costs for the next five years, it is make your mind up time. In the last fortnight, three of the best five-year fixed rates have been withdrawn, and the cheapest current offer still available, according to brokers John Charcol, is Coventry Building Society's 6.79 per cent plus a 3 per cent fee.

There is no redemption penalty, but whichever way you slice it that works out at well over 7 per cent over the five-year term.

The fact is five-year mortgage money has been looking unsustainably cheap for some time, since the cost of funds for two years and more ahead started anticipating the near certainty of a Labour government in power by then.

But the mortgage war is not going to fizzle out. The battlefront has simply shifted to other fronts. Norwich & Peterborough in fact has almost simultaneously withdrawn its five-year fixed rate of 7.24 per cent and cut its fixed rate to July 1997 from 3.99 per cent to 3.59 per cent.

Alliance & Leicester has come up with a new low one-year fixed rate of 1.65 per cent with a six month penalty for paying back within five years.

Legal & General has returned to the fray by cutting the cost of its two main mortgage products, Guaranteed Gold and Flexible Reserve, from 6.95 per cent to 6.39 per cent.

Both are variable rates, available through financial advisers, through Legal & General's own sales forces and over the phone from its direct sales department. Flexible Reserve allows borrowers to accelerate repayments at any time, and equally important, to borrow back the additional payments at any time. There are no hidden fees and no penalties for early redemption.

Other short-term borrowing rates are also continuing to fall. The TSB this week has cut its personal loan rates by 2 per cent to 12.9 per cent APR on loans over pounds 7,500 and by 1 per cent to 15.9 per cent on loans over pounds 5,000.