Do yourself a favour by homing in on a quick fix

The days of cheaper interest rates are numbered, writes Simon Pincombe

If the indignation that greeted Thursday's half-point rise in base rates proved anything it was that the British have taken a firm liking to low interest rates.

Unfortunately, single-figure rates do not look like being around much longer.

If Kenneth Clarke, the Chancellor, is to cut taxes before the next election while keeping the lid on inflation it is a near certainty that interest rates will return to somewhere nearer their long-term norm.

Halifax Building Society, Britain's biggest lender, and Nationwide are predicting at least two more base rate rises this year.

While mortgage rates are unlikely to reflect the full impact, the standard non-discounted variable mortgage rate will end the year at between 9 and 9.5 per cent. That is still cheap by historical standards.

In the 25 years to January 1994, the standard mortgage rate has averaged 11.25 per cent. More recently, in the five years to January 1994 it has averaged 12 per cent.

If, as looks likely, the variable rate returns to its traditionally high range it will make the fixed-rate deals now on offer more attractive than ever.

This week's base rate rise had lenders and mortgage brokers predicting a stampede for fixed-rate mortgages before prices rise further. Bank of Ireland, for example, said that even before the rise it had to pull staff in over a weekend to cope with the demand for its two-year fixed-rate mortgage at 6.75 per cent.

This time last year you could obtain a five-year fixed rate mortgage for the same rate. Since then the cost of five-year money on the wholesale markets has risen to 8.77 per cent and the industry is still trying to ram home the message that if you can fix for five years at below 9 per cent then it is a very good deal.

Their experience, however, is that home owners are ignoring the long-term monetary signals and going for the cheaper two-year deals.

"Most people assume that the rates will come down again by the next election,'' said Simon Tyler, director of Chase De Vere Mortgage Managment. "They are going into two-year rates at about 6.4 per cent or very cheap 18-month deals at 4.5 per cent."

In spite of the heightened attractions of the fixed-rate deal, it is very much a buyers' market as the lenders battle for market share.

If there is a general rule of thumb it is that the cheaper the deal the more onerous the redemption penalties should the buyer wish to change lenders mid-stream.

Buyers also need to check the lender's variable rate is competitive and whether there is an arrangement fee and compulsory insurance .

The Bank of Ireland deal has redemption penalties of three months' interest payments if you move to new lenders to get better rates before mid-1999.

Of the main lenders, Cheltenham & Gloucester offers a five-year fixed rate of 8.99 per cent.

However, the redemption penalty is a colossal 12 months' interest payment should you cancel in the first year.

Halifax, which as the market leader is arguably not as worried about market share, does not have a five-year deal. It offers a three-year mortgage, fixed at 8.95 per cent for up to 75 per cent of the value of the property. Woolwich has a two-year deal at6.49 per cent for up to 80 per cent of the property's value.

With Nationwide and Halifax this week reporting a further fall in house prices and no significant recovery until well into 1996, home owners are faced over the medium term with a variable liability backed by a dwindling asset.

Most brokers are advising clients to go for longer fixed-rate deals. "The worst that can happen is that you might be paying a little bit more than your neighbours," Mr Tyler said.

If the lack of flexibility on fixed-rate deals is a problem for mortgagees who expect to pay off a chunk of the loan, there are deals linked to the London Inter Bank Offer Rate (Libor).

Brokers have reported a surge of interest since this week's increase. Some of the larger ones are fully staffing their offices over the weekend to cope with demand.

With the cost of five-year money at 8.77 per cent, they say the lenders are making little on a fixed-rate mortage priced below 9 per cent.

But while demand is increasing, there is unlikely to be a shortage of these deals.

BEST DEPOSIT RATES INSTANT ACCESS Telephone Account Notice Deposit Rate Interest or term % interval Yorkshire BS 0800 378838 First Class Access Postal £1,000 5.95 Year Skipton BS 01756 700511 3 High Street Instant £2,000 6.10 Year Britannia BS 01538 391741 Capital Trust Postal £10,000 6.35 Year Northern Rock BS 0500 505000 Go Direct Postal £20,000 6.90 Year NOTICE ACCOUNTS Bradford & Bingley BS 01274 555555 Direct Notice 30 Day (P) £10,000 6.90 Year Bradford & Bingley BS 01274 555555 Direct Notice 30 Day (P) £25,000 7.15 Year Northern Rock BS 0500 505000 Postal 60 60 Day (P) £50,000 7.40 Year Bristol & West (Asset) BS 0800 303330 Asset 90 90 Day (P) £25,000 7.10 Year TERM ACCOUNTS Woolwich BS 0800 400900 One yr fxd rate bond 1 year £500 7.50 fixed Year Halifax BS 01422 333333 Guaranteed Reserve 1 year £10,000 7.50 fixed Year Halifax BS 01422 333333 Guaranteed Reserve 2 year £10,000 8.25 fixed Year Halifax BS 01422 333333 Guaranteed Reserve 3 year £10,000 8.60 fixed Year MONTHLY INTEREST Britannia BS 01538 391741 Capital Trust Postal £2,000 5.70 Month Bradford & Bingley BS 01274 555555 Direct Notice 30 Day (P) £10,000 6.70 Month Northern Rock BS 0500 505000 Postal 60 60 Day (P) £25,000 7.02 Month £50,000 7.16 Month TESSAS (tax-exempt special savings accounts)

Britannia BS 0800 269655 5 Year £8,200 9.25 fixed Year Manchester BS 0161 832 0101 5 Year £8,400 8.00 fixed Year Hinckley & Rugby BS 01455 251234 5 Year £3,000 7.65 Year Barclays Bank 0800 400100 5 Year £1,000 7.50 Year HIGH-INTEREST CHEQUE ACCOUNTS Woolwich BS 0800 400900 Current Instant £500 3.70 Year Halifax BS 01422 333333 Asset Reserve Instant £5,000 5.00 Year Chelsea BS 0800 717515 Classic Postal Instant £2,500 6.00 Year £25,000 6.35 Year OFFSHORE (gross)

Portman Channel Islands 01481 822747 Instant Gold Instant £5,000 6.20 Year Derbyshire IOM 01624 663432 Instant Access Instant £10,000 6.30 Year Derbyshire IOM 01624 663432 90 Day 90 Day £50,000 7.10 Year Halifax JSY 01534 59840 Guaranteed Reserve 1 Year £50,000 7.70 fixed Year NATIONAL SAVINGS Accounts & bonds (gross) Notice or term Deposit Rate % Interest interval INVESTMENT ACCOUNTS 1 Month £20 5.25 Year £500 5.75 Year £25,000 6.00 Year INCOME BONDS 3 Month £2,000 6.50 Month £25,000 6.75 Month CAPITAL BONDS (Series I) 5 Year £100 7.75 fixed Maturity FIRST OPTION BONDS 12 Month £1,000 6.40 fixed Year £20,000 6.80 fixed Year PENSIONER'S GUARANTEED INCOME BOND (Series 2)

5 Year £500 7.50% fixed Month NS Certificates (tax free)

42nd ISSUE 5 Year £100 5.85 fixed Maturity 8th INDEX-LINKED 5 Year £100 3.00+RPI Maturity CHILDRENS BOND (Issue G) 5 Year £25 7.85 fixed Maturity P= by post only. All rates are shown gross and are subject to change without notice.

Source: Chase de Vere Investments PLC - 0171 404 5766. Compiled on 2 February 1995

BEST BORROWING RATES MORTGAGES Fixed rates Telephone Rate/period Max Fee Incentive % advance % £ Hinkley & Rugby BS 01455 251234 1.50 to 1/11/95 60 £195 - National Counties BS 01372 744155 2.99 to 1/1/96 90 £100 £100 cashback Citibank 0181 846 8363 6.45 to 1/3/97 85 £250 - National Westminster Bank Local branch 6.99 to 30/6/97 90 £250 - Northern Rock BS 0800 591500 8.74 to 15/4/00 90 £250 No MIG, free valuation TSB Local branch 9.49 to 31/10/04 95 £250 Free valuation Variable rates Scarborough BS 0800 590547 1.95 for 12 months 95 - Free valuation Northern Rock BS 0800 591500 2.49 to 1/3/96 90 £250 £400 cashback Bank of Ireland 01734 510100 5.55 to 1/4/97 90 £260 2yrs free ASU - FTB Stroud & Swindon BS 01255 427764 6.50 to 31/1/98 75 - - PERSONAL LOANS Unsecured Telephone APR Fixed monthly payments on £3,000 for 3 years % With insurance Without insurance Midland Bank Local branch 15.40 £116.54 £103.14

Abbey National Local branch 15.90 £115.81 £103.77

Clydesdale Bank 0141 248 7070 16.20 £113.94 £103.33

Secured Max advance % Max term Royal Bank of Scotland 0131 556 8555 10.70 70 3 years to retirement First Direct 0800 222000 10.90 80 Up to 40 years Midland Bank Local branch 11.10 90 5 to 30 years TYPICAL OVERDRAFTS Telephone Authorised Unauthorised EAR % EAR % Barclays Bank Local Branch 19.20 29.80

Lloyds Bank Local Branch 19.40 26.80

National Westminster Bank Local Branch 18. 90 33.25

BEST OVERDRAFTS Telephone Authorised Unauthorised EAR % EAR % Woolwich 0800 400900 9.50 29.50

Alliance & Leicester BS 0500 959595 9.50 29.80

Abbey National 0800 555100 9.90 29.50

CREDIT CARDS Telephone Card name Minimum Rate APR Annual income pm % % fee Standard Robert Fleming (S&P) 0800 282101 Mastercard/Visa - 1.00 14.60 £12

Royal Bank of Scotland 0131 556 8555 Mastercard - 1.25 16.00 - MBNA International 0800 062620 Mastercard/Visa - 1.38 17.90 - Gold cards Lloyds Bank Local branch Mastercard £20,000 1.00 14.50 £40

Midland Bank Local branch Mastercard £20,000 1.30 18.10 £35

MBNA International 0800 062620 Mastercard/Visa £20,000 1.38 17.90 - STORE CARDS Payment by direct debit Other methods Telephone pm APR pm APR John Lewis Local store - - 1.39 18.00

Marks and Spencer 01244 681681 1.70 22.40 1.84 24.40

Timecard 01132 471471 1.70 22.40 1.87 24.90

APR=Annualised percentage rate. EAR=effective annual rate. All rates are subject to change without notice.

Source: London & Country. Freephone 0800 373300 Compiled on 2 February 1995