Should you fix your rate now?, asked by London Mortgage Advice, North London Mortgage Broker Monday, 20th April 2009

Is there going to be a battle over fixed rates? We ask this after Banks and building societies have begun cutting the cost of their mortgages following the Bank of England half-point interest-rate cut to 0.5%.

Fixed rates have further to fall and some brokers have been advising borrowers to fix for five years to protect themselves from future rate rises. While most economists agree that the Bank of England is unlikely to cut rates again, mortgage experts are saying fixed-rate deals have further to fall.

Some experts don’t expect the cost of two and three year deals to fall much further.

However, the cost of funding five-year fixed-rate loans have fallen significantly.

Long-term fixed-rate deals could come down to 3.5% later this year.

The Bank of Engalnd has said it will pump £75 billion into the economy in this way over the next three months.

Some high street banks have said that homeowners on cheap variable-rate deals should fix now.

However following the Bank of England’s strategy on quantitative easing, swap rates will fall sharply and so you can expect to see many lenders, including Cheltenham & Gloucester, offer cheaper fixed rates next week, particularly over longer terms.

It is not likely to return to the heady days of 2007, when banks offered deals below the cost of funding, the government’s instruction to taxpayer banks to lend more should help drive down the cost of mortgages further.

But lenders are unlikely to offer better deals for those with small deposits. Lenders will remain cautious in terms of the criteria required to get the best deals — so some homeowners could get caught out by falling house prices if they wait to long.

One problem though is as property values tumble, people who may have a comfortable amount of equity now could find they do not qualify for the best deals in a year’s time — an argument for getting a valuation and remortgaging as soon as possible.

Those on their lender’s SVR, are unlikely to see their rate fall further because we may have had the last of the cuts.

So if you can fix at around the same rate, so you may as well do so. However,if you’re on a super-low tracker, it’s a different story — you’re going to have to pay more.