Time could be on your side

In the past few weeks, the gap between short- and longer-term fixed-rate mortgages has narrowed. Lenders have been putting rates up, with the cost of two-year fixed-rate mortgages going up most of all. As a result, longer-term mortgage deals are starting to look more attractive.

Abbey, for example, has increased its two-year fixed-rate from 4.45 per cent to 4.59 per cent. Alliance & Leicester has increased the rate on its popular "fee-saver" two-year fixed-rate to 5.09 per cent. Portman has put up the interest rate on its two-year fixed-rate to 4.35 per cent.

There are still a handful of attractive two-year fixed rates on offer, but deals close to 4 per cent come with high fees or other restrictions. John Charcol, the broker, has an exclusive mortgage deal at 3.99 per cent. The snag is that the minimum loan is £500,000.

The cheapest five-year mortgage rates have remained stable. The lowest widely available five-year fixed-rate is 4.69 per cent, by Nationwide or Portman.

This leaves a narrow gap between the best two-year rates, such as Halifax's 4.39 per cent and Portman's 4.35 per cent, and a 4.69 per cent five-year fixed-rate. And rising arrangement and exit fees are making short-term fixed-rate deals less attractive to buyers.

The cost of switching between lenders is significantly higher than it was two or three years ago. For homeowners who have grown used to remortgaging every couple of years, in order to pick the best rates on the market, the new charges might come as a shock.

"Fees are a much bigger issue," says David Hollingworth, the director at brokers London & Country Mortgages. "People chopped and changed [mortgages] because they could do so at relatively little cost. But now the arrangement fees and, in particular, exit fees have increased, it becomes paramount to take these into consideration." Booking and exit fees can easily bring the cost of remortgaging to between £750 and £1,000, before legal or other costs are added on.

This, combined with the smaller difference between short- and longer-term interest rates, might prompt homeowners to look for long-term value rather than chasing the cheapest short-term deals.

Drew Wotherspoon, a spokesman for John Charcol, says that the average mortgage now lasts for four years. But it is impossible to say whether this is because borrowers are happy to switch that often, or because the longer-term rates that were on offer a few years ago were not attractive, set against a two- or three-year fixed-rate deal.

But changes in the long-term interest rates offered to lenders by the City, and changes in the mortgage market itself, have provided some more interesting options for longer-term home-loan deals. The Government's Miles Report into the housing market called for a move towards longer-term fixed-rate deals. Lenders have responded with better mortgage deals on offer for 10 years and a handful of options for buyers who want to fix for the entire life of their loan.

Woolwich has just increased the interest rate on its 10-year fixed-rate deal from 4.69 per cent to 4.89 per cent, but it remains an attractive option for a homeowner wanting security in the medium to long term.

Kent Reliance Building Society has a 25-year fixed-rate mortgage at 4.98 per cent. Cheshire Building Society has increased the interest rate on its 25-year fixed-rate from 4.99 per cent to 5.33 per cent, although the deal retains some useful options, such as the ability to pay off the loan without early repayment charges in every other year, after the first five years.

But take-up from buyers for longer-term fixed rates remains low. Some home-buyers believe that rates have further to fall; some recall the costly and inflexible fixed-rate mortgages of the mid-Nineties; others just want the cheapest rate on offer. For now, despite the narrowing gap, that remains a two-year fixed-rate.