If you want to start off 2006 with a new mortgage, hold fire for a few weeks. Cheaper rates are on their way! Cheltenham & Gloucester and Northern Rock have already introduced some lower rates, and more will follow.

The cost of fixed rate mortgages is especially likely to fall. That’s because the mortgage lenders price their fixed rate mortgages according to the money market’s “swap interest rates”. These interest rates reflect how the money market expects rates to move in the future and they’re on their way down.

Two year swap rates peaked at the end of December at 4.75% and in the past few weeks have fallen to the 4.5% - 4.4% range. That means mortgage lenders can afford to trim their rates and with so much competition in the mortgage market, cheaper deals are certain to follow. Great news if you want a mortgage and are prepared to fix your payments.

At the moment the three best 2-year fixed interest rate deals are:

The Portman Building Society 4.3%
The Yorkshire Building Society 4.38%
Bristol & West 4.39%

The Portman and Yorkshire will lend up to 95% of the property’s value whilst 85% is available from the Bristol & West.

When it comes to arrangement fees, The Yorkshire is the cheapest of these three at £495, closely followed by The Portman at £499. Bristol & West charge £599.

If rates do fall as expected, you should see lots more 2-year fixed rate deals at around 4.3% and 5-year fixes are likely to come down below 4.5%. Then if The Bank of England cuts Bank Rate in the February/March period as expected, rates could fall even further later in the year.

If like us, you believe that rates will fall and you can afford to pay a higher rate if you’re wrong, you should consider a discounted variable rate mortgage or a tracker mortgage. Of the two, the tracker is the better during periods of falling interest rates, as the entire interest rate reduction will be passed on to you in full.

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