Fix for five years at 3.34%

As mortgage rates continue to tumble, some amazing deals are appearing!

Just how low can mortgage rates go?

Since March 2009, the Bank of England's base rate hasn't budged from a record low of 0.5%. As a result, the interest rates charged by home loans have plunged to levels never seen before.

What's more, as the UK economy weakens, the likelihood of the Bank's Monetary Policy Committee raising its base rate within the next 12 months become lower and lower. Also, swap rates (which influence fixed rates) have tumbled in recent months.

Lower swaps mean cheaper fixed rates

For example, five-year swaps have nose-dived since the spring, which helps to lower fixed rates. In April, five-year swaps cost around 3.1%. On Thursday, I found them trading at below 1.74%, so they have fallen steeply over the past five months.

Thus, mortgage lenders have continued to reveal cheaper and cheaper fixed-rate deals, especially over five and 10 years. For example, leading lender HSBC has rocked the market with this table-topping home loan:

Here are two other five-year fixes firmly at the top of the best-buy tables:

Two cheap five-year fixed rates

As you can see, Chelsea Building Society (now part of Yorkshire Building Society) has a five-year fix at 3.29% a year, which is 0.05% a year lower than HSBC's 3.34%. However, the fee for this loan is £496 more than HSBC's, though it is available to borrowers with a 30% deposit, versus 40% for HSBC's deal.

Yorkshire itself offers a five-year fix at 3.39%, which is 0.05% a year higher than HSBC's, plus a fee just £4 less than HSBC's. Then again, this home loan is open to borrowers with only a 25% deposit, which gives a few first-time buyers a chance of applying.

Why fix now? Safety first, of course!

In theory, mortgage rates could drift a little lower from here, particularly if the base rate is cut from its current level of 0.5% to, say, 0.25% or even 0%.

However, with the base rate already fairly close to zero and swap rates narrowing dramatically of late, there's not much fat left to cut. Though we might see five-year fixed rates falling to around 3%, I wouldn't hold your breath waiting for this.

Therefore, I suspect that there are compelling reasons to fix now.

For many homeowners and buyers, being able to fix your rate for the next, say, five or 10 years will provide a huge amount of certainty. After all, knowing exactly how much your next 60 or 120 monthly payments will make budgeting far easier. In my view, it's worth fixing now to enjoy this payment certainty while rates remain at record lows.

To put today's rates into perspective, I fixed my mortgage in the late Nineties for 10 years at 6.25% a year. Three or four years later, I paid around £2,700 to exit this deal, after the base rate had dived below 4% in the aftermath of the terrorist attacks of 11 September 2001.

Today, with the base rate at 0.5% and fixed rates now roughly half my 6.25%, I wouldn't hesitate to fix for five or 10 years. To be blunt, humble arithmetic suggests that, for rates, the only way is up!

History is on my side

Lastly, to demonstrate how amazingly low today's fixed rates are, here's how the average mortgage rate has varied over the past forty years:

Source: Building Societies Association

Indeed, with fixed rates so low nowadays, it may even pay to pay an exit penalty to ditch an existing mortgage. However, please do check with your lender to see what charges you'd have to pay to move to a new rate or lender.

Also, check all mortgage documents carefully to find out which of these hidden charges are lurking in the small print...

More: Find magnificent mortgages | Fix at 3.99% for 10 years | Fix at 2.89% for three years