Interest rates may be rising but don't get 'fixated on a fix'

With predictions of an imminent rise in the base rate being shouted from the rooftops, many borrowers have been scrambling to get their hands on a cheap fixed-rate home loan.

But the supply is dwindling - a raft of lenders began withdrawing their "best buy" deals just over a week ago - and brokers are urging borrowers not to get "fixated on a fix".

The rush to pull cheap fixes was prompted by the shock announcement of a rise in inflation to 3.1 per cent in March, and comes against the backdrop of a near-certain base rate hike next month to 5.25 per cent - amid fears of yet more rises.

Alliance & Leicester launched its range of re-priced deals on Monday, with rates up 0.3 percentage points. This includes a rise in the two-year fix to 5.29 per cent, with a [pound]999 fee. On the same day, Portman upped the rates on its fixes by 0.14 points, pushing its two-year deal up to 5.69 per cent, with a [pound]499 fee.

Nationwide followed, adding 0.14 points to its two-, five- and 10- year fixes, while the Halifax notched its rates up by 0.1 percentage points on Thursday.

Northern Rock is due to raise all its fixed deals by 0.2 percentage points tomorrow.

Those borrowers who are set on fixing should act fast, brokers argue. "There isn't much left under 5 per cent," says Melanie Bien at Savills Private Finance.

One of the few remaining cheap deals is from Cheltenham & Gloucester at 4.49 per cent, though this comes with a hefty 2.5 per cent fee. But for borrowers desperate to minimise their monthly repayments, says Nick Gardner at broker Chase de Vere Mortgage Management, this may be a price worth paying.

That said, percentage-based fees can be "quite nasty", he warns, as they will rise in line with the size of your mortgage.

Bradford & Bingley, meanwhile, is offering a low rate of 4.89 per cent with a flat cash fee of [pound]1,299. This deal is "one of the best around now," says James Cotton at broker London & Country, although it is being withdrawn at the end of tomorrow after which the rate will be 4.99 per cent and the fee [pound]1,499.

Mr Cotton adds that borrowers should not grab at a deal "just because it's a fix", and Ms Bien agrees: "If there is a quarter point base rate rise next month, you may be better off with a discounted variable or tracker deal instead. "There is a feeling we are nearing the top of the current interest rate cycle, which means you will be better off should rates then start to fall."

She picks out a two-year tracker from Birmingham Mid-shires at 0.81 percentage points under base for two years - giving a pay rate of 4.44 per cent, with a 1.25 per cent fee.

"Even if the base rate rose by 1 per cent, you would still be paying less than if you opted for one of the fixes currently available."

But Mr Gardner adds that fixes may still be more suitable for people who don't have much flexibility in their budget. "Borrowers don't really want to be stretching themselves financially, only to find that a series of rate rises takes their monthly repayments out of control."

Timothy and Janice Goode, from Wiltshire, recently remortgaged to a fix with the Halifax. "We were on a five-year tracker with Intelligent Finance, but every time the base rate moved, our monthly repayments changed," says Timothy. "We decided to lock into a deal where we knew our exact repayments."

After contacting London & Country, it took the couple just a month to switch to a two-year fix with the Halifax at 5.14 per cent, with a [pound]999 fee.

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