Cowie's quick guides fixed rate mortgages

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Ian Cowie looks at the increasing attractiveness of home loans that take away the worry of rising interest payments.

What's new?

Some of the cheapest fixed-rate mortgages since the start of the credit crisis are coming on to the market, as the Government's Funding for Lending scheme makes it easier for banks and building societies to advance home loans. So home buyers who want certainty about future costs can lock into fixed deals below 3.4pc for five years or below 4.3pc for 10 years, depending on how much they need to borrow.

Why bother with fixed - rate mortgages?

Bank of England base rate has remained frozen at 0.5pc for nearly four years now but is unlikely to stay there forever. Home buyers who can cope with standard variable rate (SVR) mortgage costs around 3.99pc the current SVR for Halifax, Britain's biggest mortgage lender might struggle if rates were forced higher; perhaps by rising inflation or falling exchange rates for sterling. Fixed rates enable you to avoid that risk and have certainty about what is many household's biggest monthly outgoing.

How low can fixed - rate mortgages go?

West Bromwich Building Society is offering a five-year fixed-rate mortgage at 3.39pc to borrowers with a 20pc deposit or, put another way, requiring loans to value (LTV) of no more than 80pc. There is a curiously priced arrangement fee of £748 on this deal but also the flexibility of borrowers being allowed to make overpayments up to a maximum of £999 per month.

Charlotte Nelson of independent statisticians Moneyfacts commented: "The fee of £748 is reasonable and much lower than the competition, so is bound to prove popular with those looking to keep initial costs down."

Where can I fix mortgage costs for longer?

Borrowers with at least 25pc equity in their home can lock mortgage costs at 4.29pc for 10 years with Leeds Building Society. Those who require up to 80pc LTV are being offered a fixed rate of 4.69pc for the same term from the same lender, demonstrating how borrowers with the biggest deposits can get the finest rates. However, there is a £199 booking fee plus an £800 completion fee and an eye-watering early repayment penalty equal to 6pc of the sum borrowed if the mortgage is repaid with two years of being taken out.

What if I need to borrow more?

Yorkshire Building Society has reduced selected fixed mortgage rates, including the three-year fix at 4.64pc on up to 90pc LTV. A fee of £495 is payable. The deal offers a £500 rebate incentive on completion of the mortgage and borrowers have the added flexibility of being able to make overpayments up to a maximum of 10pc of the mortgage advance.

Ms Nelson said: "It's great to see a rate reduction on a high loan-to-value deal. Although there are lower alternatives available, this deal, combined with a reasonable rate, low fee of £495 and £500 rebate, is highly attractive."

Where can borrowers with only 5pc deposits find fixed-rate mortgages?

Since the credit crisis began five years ago, 95pc LTV mortgages of any description have become harder to find but fixed rates are now becoming available. Hanley Economic Building Society has launched a new five-year fixed rate priced at 5.49pc on mortgages up to 95pc LTV. A fee of £200 is payable. This deal also allows overpayments up to a maximum of 10pc of the outstanding balance.

Who are the major providers?

Halifax's major rivals include Santander (Madrid: SAN.MC - news) the Spanish giant that bought Abbey National, Alliance & Leicester and Bradford & Bingley and HSBC (LSE: HSBA.L - news) . Nationwide, Britain's biggest building society, should not be overlooked as organisations owned by their members rather than shareholders are advancing a rising proportion of home loans, particularly to first-time buyers.

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