Getting In A Fix

The past few months have been extremely tough for many homeowners, and particularly for those who reached the end of cheap fixed-rate deals they took out two or three years ago.

The past few months have been extremely tough for many homeowners, and particularly for those who reached the end of cheap fixed-rate mortgages they took out two or three years ago.

While the average rate for a two or three-year fix was just over 5 per cent back in the summer of 2005, this figure broke through the 7 per cent mark in July this year, leaving hundreds of thousands of already over-stretched households facing hefty payment hikes.

Given that fixed-rate deals have only been going one way for the past few months -- upwards -- a growing number of borrowers have opted for the long-term security of a fix of five years or more.

However, there are now signs that the mortgage landscape is changing, and that short-term mortgage rates are falling. As a result, short-term fixed-rate deals are being pushed back to levels not seen since the start of the credit crunch. (Of course, that could change, this week's financial turmoil could push up rates again.)

Who Has Cut Their Rates?

Let's look at who has cut their rates.

Barclays, Abbey, Cheltenham & Gloucester and First Direct are among the most recent lenders to add their names to the growing band who have cut rates, following hot on the heels of the Co-operative, Nationwide and Yorkshire building society. Since cutting the rates on its fixed rates by up to 0.5 per cent, as well as halving some of its arrangement fees to £495, the Yorkshire has made it into the Moneyfacts best buy tables with two of its products.

It is now offering a two-year fix at 5.89 per cent for those with a maximum LTV of 90 per cent with a £495 fee, and a two-year fix at 5.29 per cent for those with a maximum LTV of 75 per cent with a £975 fee.

Elsewhere, HSBC has introduced a raft of reductions, and makes it into the best buy tables with a three-year fix at 5.69 per cent, with a 90 per cent LTV and a £999 fee.

Beware Of Hefty Arrangement Fees

While short-term fixes are looking increasingly competitive at present, be warned that many of these low headline rates will come with sizeable arrangement fees.

Nationwide, for example, has announced cuts of up to 0.3 per cent, but it has also put up the fee on its high-fee mortgages from £1,499 to £1,999.

Given the hefty fees being levied on some of the more competitive mortgage deals at the moment, it is crucial that you work out the overall cost of the home loan -- and that means calculating the true cost of both rate and fees.

What Should Borrowers Do Now?

If you've been sitting tight on your lender's standard variable rate (SVR) waiting for more competitive deals to come along, now is the time to think about remortgaging. The key, of course, is to scour the whole market for the best deals. A mortgage broker can help you do that.

You may be tempted to take out a fix given the rates currently on offer, but be aware that the Bank of England may cut its base rate in the next few months. So you should consider trackers and discounted deals which should follow the base rate down.

HSBC, for example, is currently offering a lifetime tracker at 5.79 per cent with a £599 fee for those remortgaging on a 90 per cent LTV. However, you should only opt for a tracker if you can afford to be wrong -- in other words, if you will still be able to afford your monthly repayments, even if base rates go up.

If you're not entirely sure that you will be able to do so, you should opt for the security offered by a fix, even if it means you have to pay a little more for that peace of mind.

More: Three Reasons To Use A Broker