Call to act fast over fixed-rate mortgages

Homeowners who want a fixed rate mortgage were advised to move fast as lenders began pulling their best deals following rising funding costs.

Nearly a dozen lenders have either withdrawn or increased some of their fixed rate mortgages during the past week, including first direct, which has pulled its best buy two and five-year fixed rate products.

Other lenders who have hiked at least some of their mortgage rates include Lloyds TSB and Cheltenham & Gloucester, Halifax, Northern Rock, Skipton Building Society and the Co-operative Bank and Britannia, with some groups increasing their rates by up to 0.7 per cent.

The latest round of re-pricing has been sparked by a steep increase in swap rates, upon which fixed rate deals are partially based.

Since the beginning of the year two-year swap rates have risen from 1.53 per cent to 1.79 per cent, while five-year ones have jumped from 2.66 per cent to 2.93 per cent, amid speculation that the Bank of England's Monetary Policy Committee will have to raise interest rates sooner than previously expected because of high inflation.

The latest figures show that the Consumer Prices Index rose by more than expected during December, increasing to 3.7 per cent, up from 3.3 per cent in November, and well above the Bank's 2 per cent target.

David Hollingworth, of mortgage broker London & Country, said: "We saw lenders pulling their fixed rate deals last week and that trend has continued into this week. Swap rates have been increasing over the past couple of weeks, putting upward pressure on the prices of fixed rate mortgages.

"Once you get a few lenders re-pricing, that puts pressure on other lenders to respond. There are very few five-year fixed rate deals still available for under 4 per cent."

He advised people who wanted the security a fixed rate deal offered to consider remortgaging now, while rates were still quite low.

Clare Francis, site editor of, said: "Because of where we are at in the interest rate cycle, and the way mortgage rates are priced in terms of swap rates, when we see the current crop of fixed rate mortgages disappear, there is no way lenders can offer new ones at cheaper prices.

"People thinking about taking out a fixed rate mortgage to protect themselves from future rate rises, should think about doing so now, before all the good deals disappear."

But it is worth remembering that although many economists now expect interest rates to start rising sooner than previously expected because of inflationary pressures, they are still set to remain low by historic standards.

Yorkshire Building Society currently has the leading five-year fixed rate deal at 4.19 per cent for people with a 25 per cent deposit who pay a 995 fee.

The building society also has a best-buy two-year deal of 2.79 per cent for someone with a 40 per cent deposit who pays a 1,495 fee.