Borrowers who have spent the last two years comfortably sheltered by a cheap fixed rate deal could soon be in for a nasty shock. But prompt action can ease the blow. When it comes to mortgages, the most popular type to take is a fixed rate. According to recent figures from the Council of Mortgage Lenders, 89 per cent of first-time buyers and 73 per cent of homemovers take out fixed rates deals – and typically for short periods of two years. Two years can pass with frightening speed but borrowers coming to the end of a fixed rate deal this autumn have another shock in store – it’s going to cost them.

New rates for old

In September, 2005 the Bank of England base rate stood at 4.5 per cent. Two years later, in September 2007, and it’s pegged at 5.75 per cent, with homeowners braced for a rise at every turn. The effect this has had on fixed rate mortgages has been stark, says David Hollingworth at mortgage broker, London & Country. "Back then, you could have got a two-year deal for 4.25 per cent, whereas now you would be looking at least 5.5 per cent." But worse still is paying your lender’s Standard Variable Rate, which your mortgage will revert to at the end of the fix if you don’t remortgage in time. The average cost of an SVR is now an unwelcome 7.6 per cent, according to Moneyfacts.

A new landscape

Another way that the fixed rate landscape has changed in the last two years is that there are more long-term deals available. That’s because, in the summer of this year, Chancellor, Alistair Darling called on lenders to offer more long-term fixes as, in his view, this would stabilise a runaway housing market. Most experts disagreed but nevertheless, a spate of lenders, including Nationwide, Manchester, Yorkshire and Norwich and Peterborough building societies, all launched, or re-launched, 25-year fixed rate deals. The benefit of these mortgages is that the tie-in periods are shorter than the term of the fix – a kind of flexibility that has only recently become available. For example, Nationwide has a 25-year fixed rate deal priced at 6.29 per cent but with a tie-in period of just 10 years. Manchester Building Society’s 25-year deal comes with no tie-ins at all, although you will have to pay a two per cent arrangement fee, which you can reclaim if you choose to lock in for the long-term.