It seems as though fixed-rate mortgages are likely to make a comeback in terms of popularity in the wake of one of the UK’s top lenders raising the cost of its standard variable rate for new customers. Customers that are coming to the end of current mortgage deals with Cheltenham & Gloucester and Lloyds TSB Scotland, which are part of the Lloyds Banking Group, will be pushed onto the higher variable rate of 3.99% rather than the current SVR when their current deals expire. The higher rate guarantees to stay within 2% of the base rate in regards to both residential and commercial offerings.

It has been usual for borrowers to switch to their lender’s SVR at the end of their fixed-rate deals, and many have chosen to remain on such rates since the Bank of England cut interest rates to 0.5% in March 2008.

The percentage of borrowers on fixed-rate mortgages stood at its lowest rate for five years as of March and April, according to figures released by the Council of Mortgage Lenders. The figures also show that SVRs remain cheaper than fixed rates in general.

Lloyds’ SVR guarantee means that its 2.5% rate is currently the cheapest rate going, and borrowers have certainly made the most of it by sticking to it for the long haul. Lloyd’s, however, are set to introduce the new Homeowner Variable Rate this month, and the new rate will come into effect on June 1st, 2010 for those new customers taking Lloyds’ shortest fixed deal lasting for two years. The rate will not affect either existing customers or Bank of Scotland customers, as the BOS has its own SVR which stands at 4.84%.

Similar proposals were adopted by Nationwide and several other small building societies last year. It is widely thought that other providers will soon follow.

It may well be that the gradual drop in cost of fixed-rate mortgages may hasten a return back to fixed rates, which are currently at their lowest for 15 months. The average fixed-rate deal for two years now stands at 4.61% as compared to its peak level of 5.21% since base rates reached their trough.