Stick or twist?

Mortgage rates have been falling, but should you lock into a fixed-rate deal now... or wait and see in case rates drop even further?

The Government’s ­Funding for ­Lending scheme, which has ­provided banks with cheap funds to pass on, has been ­responsible for the plummeting rates.

As a result, the number of people considering a step on to the property ladder has reached a three-year high, according to the Royal Institution of Chartered Surveyors.The Council of ­Mortgage Lenders last week reported a 20 per cent increase in the number of first-time ­buyers in March compared with February.

Several lenders have now slashed their mortgages again, with many cutting fixed-rate deals, especially for those with smaller ­deposits.

According to Moneyfacts.co.uk, the average two-year fixed rate for a buyer with a 10 per cent ­deposit was 5.44 per cent a year ago and 5.30 per cent six months ago. Today the average rate is 4.5 per cent.

Similarly, a year ago the average two-year fixed rate for someone with a five per cent ­deposit was 5.79 per cent, but this has fallen to 5.49 per cent.

There are some great fixed rates available. But make sure you don’t fix for longer than you are absolutely sure about or you will have to pay a hefty redemption penalty to get out of the mortgage.

The bigger the deposit you have, the better rates you get. If you have a 40 per cent deposit, or the ­equivalent amount of equity in your home and want to lock it in for the long term, Santander on Friday launched its lowest ever 10-year fix, at 3.94 per cent with a £995 fee.

If you don’t want to lock in for so long, and have a 35 per cent deposit or the same in ­equity, First Direct has slashed its cheapest fixed rate from 2.64 per cent to 2.49 per cent, but with a hefty £1,999 fee. It also offers a 2.69 per cent five-year deal with a £499 arrangement fee.

There is now a host of five-year fixed rates below three per cent, but be aware that the very lowest rates often carry big fees which can have a devastating impact on any savings, from choosing a lower rate.

The dilemma is whether to hold off ­fixing in the hope of even cheaper mortgages coming to market.

However, for many the chance of trimming another 0.10 per cent from a rate will be far outweighed by slashing their mortgage rate as soon as possible, rather than pay another month at a high standard rate... and no one wants to miss out on the property they want while waiting for rates to drop further.