High cost of fixed rates

1The average two-year fixed rate now stands at 6.75 per cent, Moneyfacts.co.uk says, while five-year fixes average 6.72 per cent. “It's not news, as we all knew it was coming, but lenders have begun the next round of repricing their fixed rates upwards,” says Drew Wotherspoon, of Charcol , the mortgage broker.

Variable rates look good

2 Compared with the average two-year fix, the average variable rate, of 6.66 per cent, now looks competitive. “If the current economic climate persists, it is not unreasonable to predict that we may see a situation where a higher proportion of borrowers are on the lender's standard variable rate,” says Darren Cook, mortgage expert at Moneyfacts.

Act fast on fixed rates

3 “Swap rates, which dictate the future movement of fixed-rate deals, are soaring on the back of a gloomy inflation outlook,” says Melanie Bien, of Savills Private Finance . Consumer price inflation rose to 3.3 per cent in May, well above the Bank of England's inflation target of 2 per cent, meaning that further base rate cuts are highly unlikely in the short term.

Choose with care

4 “There are hefty early repayment charges if you want to switch mortgage before the fixed-rate period ends,” Bien says. If, for example, you may need to move home within the next couple of years, a fixed rate mortgage would be a bad idea.

Two-year fixes most costly

5 “Two-year fixes are being pulled and re-priced upwards faster than longer-term deals, simply because two-year money is more expensive, and because these deals are traditionally more popular with borrowers,” Bien explains. Provided you are relatively sure of your movements for the next five years, you may be better off with a longer-term fix.

Fees soar...

6 Jonathan Cornell, of Hamptons International Mortgages , says that charges on fixed rates may be up to two-thirds higher than they were this time last year. uSwitch.com, the price comparison website, says that fees averaged £987 in April this year. Lenders are levying other charges, too: Abbey recently introduced a non-refundable booking fee of £150 on its mortgage range, while Lloyds TSB levies a booking fee of £99. These charges are levied even if the borrower is not able to complete.

... but not on longer deals

7 “The fees on longer-term fixed rates tend to be lower than those of shorter term fixed rates,” says Jonathan Cornell. Moreover, because you remortgage less often with a long-term fixed rate deal, you will spend less on upfront arrangement fees.

Calculate the overall cost

8 “Borrowers should be wary of taking low-fee products as these tend to come with higher rates,” Cornell says. “Over a long term, a small difference in rates may lead to a huge difference in the total amount the borrower pays.”

Long-term fixes languish

9 The Government would like us to opt for long-term fixes - with terms of up to 25 years - because it believes this will provider greater stability in the housing market. However, for most people, they are simply not practical. “Some long-term fixes, such as the one from Kent Reliance, have early repayment charges for the entire 25 years - in this instance, 3 per cent of the loan amount,” Bien says.

...but popularity increases

10 The Council of Mortgage Lenders (CML) says that 59 per cent of borrowers took out fixes in April, up from 52 per cent in February. It adds that this trend is likely to continue.

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