Take care to get the best mortgage deal

MORTGAGE lenders have introduced a flurry of rate changes, giving some borrowers a timely boost but causing others to lose out. After several weeks of increases, fixed-rate mortgage costs have started falling once more. The response of lenders to this month's interest rate cut has been less beneficial to homeowners than previously hoped, however, with trackers creeping up and standard variable rates not mirroring the base rate reduction.

So, who will be the winners and losers from the latest mortgage market merry-go-round?

I'M LOOKING FOR A NEW DEAL

||76|| Fixed rates – The onus for homeowners reaching the end of their existing mortgage deal in the near future is on avoiding being trapped on their lender's standard variable rate (SVR). The good news is that fixed rates have begun declining again as the swap rates on which they are based have tumbled in the past month.

"This means lenders can fund fixed rates at reasonable prices," said Katie Tucker, technical manager at broker Mortgageforce. "The dominant factor for lenders is that there are customers out there with low loan-to-values that they are in a position to compete for."

Fixed rates have been cut this week by lenders including Abbey, RBS (which includes NatWest) and Nationwide, with more cuts expected to follow. But, with the exception of RBS, which trimmed some 90 per cent LTV rates, the reductions primarily benefit homeowners with a substantial amount of equity in their home, typically 30 per cent or more.

Despite the fall in interest rates, fixed deals, particularly over three-year terms, have grown in popularity in each of the past three months, according to Abbey's remortgage Index. "The research suggests that borrowers are not willing to gamble on a rate cut," said Nici Audhlam Gardner, director of Abbey Mortgages. "Instead they are now more likely to opt for a medium-term fix which will provide them with some certainty in these uncertain economic times."

As swap rates tend to move with interest changes, some homeowners approaching the end of their deal may be tempted to wait and see how much lower fixed rates will go. But this is a gamble, warned Tucker. "If you need to remortgage now you don't want to land on an SVR. There's some argument for hanging around if you want a fixed rate but not if it means sitting on an SVR for a period as the savings would be wiped out."

||54|| SVRs – Another reason for the appeal of fixed rates is that SVRs, to which most borrowers are automatically switched at the end of their fixed rate term, remain higher than the competitive fixed-rate deals currently available, with the gap widening.

Lenders have come under fire in recent weeks for failing to pass on the 0.5 per cent reduction in the Bank of England base rate to borrowers on SVRs, although most of the big players have now done so. But the criticism is largely unwarranted, explained Tucker. "Lenders have had no discount to pass on because they use the interbank rate, which has come down a little but nothing compared with the base rate. The relationship between the base rate and Libor is now completely elastic."

The latter has fallen slightly as lenders have regained a degree of confidence in funding conditions due to the government's funding support plans. But it was still 6.08 per cent at the time of writing, a marked distance from the bank rate of 4.5 per cent.

3 Trackers – "Trackers have been growing in popularity as people understand that base rates are only likely to go in one direction in the near future," said Louise Cuming, head of mortgages at Moneysupermarket.com. But she added that the good deals are disappearing quickly, with lenders increasing margins on trackers since the base rate cut more than two weeks ago, and urged borrowers seeking a good deal to act quickly.

Several trackers have been withdrawn this week, with Alliance & Leicester taking its two-year trackers off the market due to higher than expected demand. As the spread between the interbank lending rate and the Bank of England base rate is unlikely to narrow significantly, trackers will probably become less competitive.

I WANT TO BUY MY FIRST HOME

Little has changed for first-time buyers, in that some good deals are available – if you have a chunky deposit to put down. The best deals increasingly require a deposit of at least 15 per cent, although there are still some competitive 90 per cent LTV deals around.

The only nationally available 95 per cent LTV deal is from the Royal Bank of Scotland, observed Cuming. "Although there are 26 products, all the others are only available through local branches of lenders such as the Cumberland Building Society. In contrast there are 237 products available at 90 per cent and although many of these are again branch-based deals, it still underlines the need for a 10 per cent deposit to access choice.

Nationwide's first-time buyer specific deal of 85 per cent LTV with a fee of just £299 is probably the benchmark for first-time buyers at present, said Tucker at Mortgageforce. But she added: "It isn't such a bad thing that 90 and 95 per cent deals are no longer widely available because it's protecting consumers from the impact of falling property prices."