In the process of buying a house, secured a deal pre-base cut - fixed rate 5.99 for 2 years 75% LTV (oh how I wish we'd gone for the tracker now - 1.49 above base rate!) Oddly, no longer available! Anyway, now contemplating our options (isn't everyone) and wondered if any-one has any ideas we've not thought about, please? We're not tied into the deal as haven't signed, though tied into lender, current fixed rate ends end February and want to move before Christmas and a pretty hefty ERC! Options we are looking at now are 5.39 fixed rate or 5.19 tracker, both over 2 years with same £495 fee. Fixed rate appeals for the certainty but if base rate drops again?! Also, concerns as we are taking all of the 75% on interest only and if house prices continue falling, may have difficulty in 2 years getting a new deal? Anyone with any ideas on anything we've not thought about would be gratefully received, want to change onto a 'new' deal asap, so house buying/selling process not delayed. Thanks.

The mortgage market is still in considerable turmoil and, at the heart of this is the wide gap between BoE base rate (now 3%) and LIBOR (changes daily but around 4.5%), The later is the key rate because it governs the rate at which mortgage suppliers can themselves borrow in the market place or the price they have to pay for retail deposits.

You last tracker offer is therefore 2.19% (rather than the 1.49% earlier) over BoE but beware that there may be a 'collar' in the fine print of your offer. Often these are
at 3% or 2.75% which means your tracker will not follow the BoE rate much lower, if at all. This is an important point for your decision and often not highlighted by lenders.

The likelihood over the next two years is that BoE rates will be cut again, at least by another 1%, which makes the tracker marginally
better, providing no 'overhang' beyond the offer period.

Assuming you have a 3% collar, I would go fo the fixed rate, for peace of mind.

Who knows where the market will be in two years, relative to your concerns about having a 75% cover. If you are staying with the same provider, keep a spotless payment and credit record, you will be in the best position to face this.

Hope this is helpful !
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Although the Bank Base Rate is likely to fall again, mortgage lenders are unlikley to pass on much (if any) of future falls. The deals they offer are linked to LIBOR and they need to make money. I feel many of the Banks cuts last week were pushed through by their new government shareholders and I am unsure this will happen again as the banks needs to make a decent margain on their mortgage books to rebuild their cash reserves. Therefore, I don't see fixed rates getting much lower than present levels.

The main concern with any mortgage is affordability and not the interest rate. I would be slightly concerened you are going interest only. I hope you have some form of repayment vehicle or are making savings to repay your mortgage loan. Look at what the payments might be after the fixed or initial tracking period.

I feel house prices have at least 15% more to fall in the next year. I would recommend you seek professional advice from an independent mortgage broker. They are not very busy at the moment so they should be keen to help you.

Many thanks for your advice. We are going to go for a fixed rate.