Grab a fixed mortgage deal while they're cheap

Some fixed rate mortgage deals are offering super low rates, but act quickly because they may not be around for long.

Fixed rate mortgages are still proving to be a very popular choice with borrowers. That's according to Legal & General's Mortgage Purchase Index which shows during the first quarter of the year almost three in four borrowers (72%) plumped for a fixed rate deal.

Only 65% of borrowers took out a fixed rate mortgage in the previous quarter. But the latest increase is hardly surprising given that the sheen has been well and truly taken off tracker deals now the base rate has been cut to just 0.5%.

New tracker deals are being set at much higher margins above the base rate than they were pre-credit crunch. The most competitive tracker is from Co-operative Bank with a margin of 2.29% above the base rate, giving a current pay rate of 2.79%.

This mortgage deal - and other best buy trackers - might appear quite cheap now. But pressure will be put on homeowners when the base rate begins to climb, and monthly repayments become more expensive.

Luckily, many fixed rates have fallen making these deals even more attractive. L&G say the average two-year fixed rate is now 4.78%, down from 5.90% last quarter, while three-year fixes have dropped from 6.30% to 5.41% over the same period.

And, of course, the best buys have become super low with HSBC offering a two-year rate of just 2.89%. This is particularly good news for borrowers who don't want to take a gamble on how long the base rate - and therefore the repayments on tracker mortgages - will remain low.

So, with enticing rates, should you jump on the fixed rate bandwagon too?

There's no doubt if you've got a decent deposit or equity stake in your home, you could take advantage of a rock bottom fixed rate right now. Take a look at the table below which shows today's top six best buys:

Top six fixed rate mortgages

Source: Moneyfacts. All deals are available to first time buyers. *Cost of booking fee and arrangement fee combined. **Not available for remortgages. ***Available via mortgage brokers only.

As you can see, there are several really cheap deals with tempting rates between 2.89% and 3.19%. But, there are a couple of things you should bear in mind: Firstly, the best deals are normally reserved for those with a low loan-to-value or LTV (the LTV is the mortgage loan as a percentage of the property value).

Take HSBC, for example. To qualify for the lowest rate of 2.89% you'll need a massive deposit or equity stake of at least 40%. This might be possible if you're remortgaging, but it'll probably be beyond the reach of most first-time buyers.  

Unfortunately, if you only have a 10% deposit to put down the lowest rate you can hope for is 4.99% fixed for a year from Chorley & District Building Society (with a product fee of 0.75% of the loan). And even that deal is only open to borrowers in the North West! Many more deals are currently priced at 6% or more which is hardly competitive when you compare it with the whole mortgage market.

True cost

Secondly, watch out for the product fees. A low rate can be completely wiped out by high set up costs. The HSBC deal is fairly expensive in this respect with a product fee of £1,499, while First Direct and NatWest/RBS are more reasonably priced at £898 and £799 respectively.

But I think the worst culprit in this selection is Alliance & Leicester which charges 2% of the amount you borrow. That's a staggering £3,000 on a typical mortgage loan of £150,000. Unless your mortgage is tiny, the A&L deal will probably be a pretty expensive choice.

When you compare mortgage deals you should do so by taking the true cost of the deal into account. This means not only looking at the headline rate, but also all the mortgage fees you'll have to pay for the deal in question. Find out how to calculate the true cost of a mortgage deal here, and a rundown of all the costs involved can be found here.

Should you go for a fixed rate now?

The pricing of fixed rate mortgages has only really started to fall in the last few months. But industry commentators don't expect these new lower rates to hang around for long. Ray Boulger of independent mortgage experts, John Charcol reckons this trend is about to come to an end.

Fixed mortgage rates are influenced by swap rates. In simple terms, swap rates are a mechanism used by lenders to ensure their margin (or profits made from lending) remain stable. When swap rates rise lenders will re-price the fixed-rate deals they offer upwards, increasing the rates new borrowers have to pay.

Experts anticipate swap rates will rise soon, which means fixed-rate home loans could become more expensive across the board. For this reason, if you're planning on taking out a new fixed-rate deal, it's probably a good idea to lock in now before rates start to climb.

Compare mortgage deals at lovemoney.com and speak to one of our brokers

More: Top mortgage deals | You can get a great mortgage with a low (ish) deposit