Time to fix that rate?

With the base rate on hold for another month and some major lenders reducing their fixed rates, is now the time to switch to a fixed rate mortgage?

Probably not, say the experts who predict that fixed rates may fall further in the next few months and suggest that trackers are a better punt at the moment. Amongst the lenders that have already cut their rates Nationwide has dropped rates on all its mainstream fixed-rate mortgages and some of its tracker deals for new customers by up to 0.46 percentage points and Newcastle building society has lowered its two-year fix for borrowers with a 25% deposit from 6.20% to 6.12%.

Halifax also announced cuts of up to 0.15 percentage points to its fixed deals last week. Its five-year fix for customers with a 25% deposit has gone from 6.49% to 6.34%. BM Solutions, Bank of Scotland and Intelligent Finance, which are part of the same group as Halifax, have also made cuts as have both Cheltenham & Gloucester and Abbey.

Swap rates, the starting point that lenders use to determine the price of their fixed rates, have fallen dramatically over the last few weeks, coming down 0.7% from their peak a month ago. Even the bad news on inflation has failed to dent their progress downwards, and now lenders are, theoretically at least, able to offer better priced products. Although this sounds like good news there are still a couple of factors that might prevent fixed rates dropping straight away. Firstly, lenders have been looking to increase margin rather than market share, so have priced more profit into their products. Secondly lenders are concerned about being inundated with applications so they don't want to appear too competitive.

However with swap rates likely to decrease further with expectations that bank rate would be cut before the end of the year there may be more cuts in the next few months so borrowers that can hold out before locking into a new fixed rate might be wise to wait before they do so. Those lenders that haven't reduced their fixed rates yet also have some catching up to do. At the moment trackers and variable rates appear to be the best bet for borrowers looking for a new deal although these will be still be more expensive than most deals coming to an end.

Borrowers coming off fixed deals taken out two or three years ago will have to cope with a significant "payment shock" and find extra money each month whether they revert to their lender's standard variable rate (SVR) or remortgage. For example, someone who took out a £100,000 two-year fixed rate with Nationwide two years ago at 4.65% could see their payments increase from £570.70 a month to £682.55 when they revert to the base rate of 6.49% assuming they have taken out a repayment mortgage over 25 years. Nationwide has recently reduced the price on its tracker mortgages with the most significant movement on its lifetime tracker, coming down an impressive 0.36% to bank rate +0.98% for those with a 25% deposit - albeit with the introduction of a modest £599 arrangement fee. Meanwhile Woolwich has decreased the rates on its lifetime tracker product. The best rate available is now 0.69 per cent above base rate with a £995 fee and early repayment charges for the first three years.

However only borrowers with a decent deposit or plenty of equity in their property will be eligible for the deal as it comes with a maximum loan-to-value (LTV) of 60% although according to Council of Mortgage Lenders data this accounts for 50% of the mortgage market. Homeowners with a smaller deposit or less equity will be charged more, both by Woolwich and rival lenders.

Tightened criteria, such as insisting on a large deposit or large amount of equity, is a side effect of the credit crunch as lenders are becoming more fussy about who they lend to. Those with a slightly dodgy credit history or borderline affordability will also find it more difficult to get a good deal.