Earlier this year it was reported that mortgage rates on fixed-rate mortgages had hit a record low – dropping to prices that hadn’t been seen since 2007. Now, just a few months later, rates on mortgages across the board have continued to drop substantially, even re-mortgages on homes that had previously been refinanced during “less than desirable” mortgage periods.

The cause for this continual drop lies primarily in the fact that many lending institutions have found that the mortgage market has become substantially more stable in recent months following the strong real estate market trends as well as the continuation of the low base interest rate by the central Bank of England. These, among other factors, has helped to create a highly competitive lending market wherein many lending agencies are actively competing with each other to offer the most beneficial rates possible on their mortgage offerings.

For consumers this is excellent news as, naturally, higher competition results in significantly better offers for all those looking at sourcing out financing either for the purchase of a home for the first time or others who are simply looking to expand their housing portfolio.

Unfortunately to take full advantage of these rates as they stand on the market many prospective buyers may still need to provide a large amount of initial funding for a down-payment in order to secure the best rates possible on a loan. Some lending institutions may require up to a 25% down payment in order to secure the best rate possible, with others offering slightly less of a minimum down payment requirement to still realize some decent rates.

Whether or not the lending requirements for new purchases will adjust with the higher competition levels found in the market today is another matter of speculation, especially as recent figures indicate that housing supply is currently outpacing demand and could subsequently have a negative impact upon the overall lending industry.

The sense of security that roughly one third of all mortgagers currently have over their finances is seen as a direct result of both decreasing repossessions in the current year along with the continuation of record low interest rates by the Bank of England – having a very positive effect upon both tracker and fixed-rate mortgages. This has allowed many households to even take on reasonable bad credit mortgages in order to help them recover from any hardships they may have faced over the past year, though most people are still relying upon the low rates to remain low in order to manage their monthly payments accordingly.

A combination of continued salary freezes, poor market conditions, layoffs and other side effects of a bad economy are all expected to contribute to the continued poor property conditions should things not continue to recover properly according to many economists – something that is a very realistic scenario should the recovery falter even slightly in either the short or long run as it could easily be a drastic rise in negative real estate trends.

Currently as of the end of March there has been roughly an 8% decrease in overall repossessions throughout the UK as compared to the rest of the first quarter of the year, with a roughly 26% decrease over the same period in 2009. While these trends are positive home owners are still warned to exercise caution when navigating the market.

Borrowers on the lookout for a mortgage have been heartened in recent months, as rate cuts coupled with some better lending deals emerge for those with deposits below 25%.

This aside, the mortgage market is still far from fully recovered, and many lenders are still adopting a safety first mentality, although the recent comparable measure of stability in both the economy and financial sector-as well as the general feeling that house prices have seen the worst of the market-has led to a gradual return of confidence in the sector.

The deepest cuts have come to fixed rates-particularly since the start of the year-principally because of just how costly they were in comparison to trackers. In fact, borrowers capable of summoning up a 25% deposit can choose from two-year fixed deals, from between 3.2% to 4%, with the best five-year fixed deals for the same level of deposit have fallen below 5%.

The cheapest pay rates are still being offered by tracker deals, with some lenders offering a rate of 2.49% to those capable of raising a 25% deposit. Customers attracted towards trackers should be aware, however, that such deals will only become more and more expensive as the base rate climbs, which it will certainly do, from its current historic low of 0.5%. Five-year fixed rates are starting to look better and better to many, and such deals also save on re-mortgaging costs, although raising as high a deposit as possible will afford the best deal. Reckon on a minimum of 25%, although, for the very best deals, 40% is much better.

The outlook for fixed rates to drop further looks bright, with the UK recovery aiding confidence-however slight it may still be. Lending has also increased a little, but life is still hard for borrowers. The main problems is with funding, as banks and building societies lack the liquidity to return to boom-time levels of lending. Also, rates remain at a record low, and the housing market is still fragile, and any future problems with the baking sector will mean a rapid return to uncertainty.

Some economists are predicting a rise as early as May of this year, although this would still appear to be very much the minority view. Many others are forecasting no interest rate rises until perhaps the final three months of 2010, and more rises following in 2011. Whilst some may look simply at the current interest rate and inflation figures (CPI currently stands at 2.9%) to make their choice, a number of economists are advising that lifetime trackers may be the wisest choice. This may also be due to the fact that the predicted cuts in pubic expenditure and concomitant tax rises will result in the same curbed levels of inflation as would a rise in interest rates – even if inflation remains high-ish.

Many have forecast that rates may not rise over 2% for another three to four years. Tracker mortgages have continued to rise in popularity over the last twelve months, and currently account for more than half of all newly issued mortgages. In fact, figures for the easily part of last year show that around 90% of newly issued mortgages were fixed rate mortgages, especially for many first-time buyers. Yet, many Building societies are now breaking their promises to borrowers and raising their rates, citing what they call ‘exceptional circumstances.’ In the wake of this some mortgage brokers have postulated that, should rates remain at their historically low levels over the next few years, then those borrowers with smaller deposits may benefit more from a tracker mortgage. The decision is, however, more dicey for a borrower with a larger deposit, of perhaps 40%. Average figures show that, in such a case, the difference between the two mortgages would be negligible at best.

Analysts and insiders expect the trend of rising rates to continue, and are advising borrowers to side-step the extra concomitant costs by switching to cheaper deals with alternative lenders, if need be. The rate raises will see those borrowers with lower deposits and equity stakes hit hardest, as they will be unable to switch. Figures released today by the Building Society Association illustrate that mutual societies’ gross mortgage lending fell sharply last year to just £18.6 billion from £37.5 billion in 2008. The figures mask a minimal, short-term spike in gross lending figures seen in December 2008, which stood at1.8 billion, up slightly on November’s figure of 1.6 billion. Analysts believe that this short-term spike was due mainly to the fact that borrowers were looking to obtain deals before the reduction of the stamp duty threshold. Insiders also believe that, total gross lending will most probably remain at low levels until funding and credit conditions improve, particularly for those seeking bad credit mortgages. These fears are underscored by the fact that total gross lending during 2009 was only half that seen in the previous year.

Building societies have been particularly hard-hit in the current low iinterest rate market conditions, as the low rate has seen their profit margins ebbing away. Their mortgage lending has relied upon the deposits of their savers, due to the freezing of wholesale money markets as a result of the global credit crunch. Also, competition among lenders-especially from state-owned banks-has increased the cost of drawing new savers. As many as eleven building societies have now raised their variable rates, and analysts expect more to follow suit soon as market conditions continue to bite. Ultimately, the pain will be unavoidably passed on the customers.

Interest rates on a number of higher LTV products have also seen a decline over the past few months with mortgages holding 80% of the home’s value showing a marked reduction of 0.77% compared to what was seen available as late as October last year, meaning some of the best mortgage rates for homes are now available for many individuals seeking to purchase with less available cash on hand.

These numbers are particularly good news to many first time buyers who have been having a particularly difficult time as of late edging their way into the highly competitive property market where constantly shifting conditions have led to many less-than-desirable situations for many people. Those looking to re-mortgage their home for slightly less than its full worth may also find these numbers helpful as it could mean the ability to pay off other residual debt by utilising their current home’s residual value more effectively immediately rather than trying to balance out multiple debt holes at once.

For those who find this information still less than inspiring should they have little to no flexible money for deposits many mortgages with even a 5% initial deposit have shown a marked interest rate decrease, dropping by as much as 0.71% since October as well. The only concern at this point is how long this decline will last and whether or not interest rates will climb in the future given recent inflation increases and many banks limiting available grants on some loans, so prospective home owners are encouraged to take advantage of these low rates while they can and keep a close eye on the market in the coming months in order to ensure that they are getting the best possible value for their money.

The Consumer Price Index now sits well above the target set by the Bank of England of 2%, the first time this has been the case since May 2009. Analysts also believe that the statistics for January 2010 as liable to record inflation cracking the 3% mark, largely due to the fact that the discounted rate of VAT, 15%, returns to its full 17.5% rate in January. This will precipitate the need for Mervyn King, Governor of the Bank of England, to write to the Chancellor of the Exchequer to explain why the CPI is not on target. All of these factors make it more likely that the Bank of England will put interest rates up soon as a means of getting inflation under control – thus bringing an end to perhaps some of the best mortgage offerings to date that have been found lately.

This would be at odds with the forecasts proffered by some economic forecasters that the Bank Base Rate could stay at the current historically low level of 0.5%-at least until the end of the year-and perhaps even stretching into 2011. This latter scenario is now appearing less likely. Michael Saunders, the chief economist for the western Europe region at Citigroup, said that the Bank of England has not been as preoccupied with inflation during the time the economy has been in deep recession, but that it would now become an increasing concern. Mr Saunders stated his belief that the BOE would raise interest rates in either the second or third quarter, and that the latest inflation figures would most likely end the existing ‘rate complacency’ displayed by borrowers, especially those banking on the current low interest rates or those on variable rate mortgages-which will be hit significantly by a rise in interest rates, handing higher monthly mortgage repayments to this set of borrowers and making those who have been struggling with bad credit mortgages particularly hard. He added that those borrowers looking at fixed rate mortgages should act quickly, as the previously low prices seen are likely to shoot up as a result of the latest CPI figures.

In many instances

standard variable rate (SVR ) is lower than the rate that had been paid during the initial deal. That’s the reason for many borrowers whose current deal is coming to an end to choose between  taking out a new deal or moving to their lender’s SVR.

Sometimes the mortgages arrangement fee cannot be justified due to the risk of defaulting so it must be due to the risk of interest rates rising.

Asking yourself if you should  insure against mortgage hike? There is only one answer:

Unfortunately there isn’t  any insurance that will protect against a rate increase.

Choosing to move to your lender’s SVR for the time being you should consider setting up a savings account in which the difference between your old and new lower monthly payment could be saved.

This money can be utilised in a future event of a of a sudden rate increase, giving you a buffer,  while you are looking for a new deal.

The only way to ensure that your monthly payment remains the same, regardless of any rate increase, is to move from your current deal onto a fixed-rate deal. But, even financial experts can’t agree on the way ahead.

Borrowers are facing unprecedented uncertainty over the future path of interest rates, which means a tough choice between low-rate tracker mortgages and the security of more costly fixed-rate deals.

Accordinding with L&C the tracker would be the best choice in terms of total repayments over the five years if interest rates rose at a slow, steady pace, but the fix would be better if rates rose sharply.

 Homeowners with low SVRs of 2.5% should also stay put. The  research shows that on any SVR at 4% or higher you could end up paying more than on a five-year fixed rate by the end of the term (in this „steady” scenario) and should consider remortgaging.

According to this report, the high street banks reduced the supply of mortgages and other credit to households during the third quarter, in contrast to the previous quarter which had seen more mortgage availability.

This shrinkage occurred despite te fact that  banks had promised to increase their lending. Bank representatives said they were unable to do this because of the deterioration in the cost and availability of funds.

Paul Samter, economist for the Council of Mortgage Lenders, was quoted in the report: “Lenders reported a welcome reduction in default rates on mortgages in the third quarter – the first in two years. Following our own figures showing a decline in mortgage possessions in the previous three months, there are encouraging signs that households are coping better than expected with difficult conditions. Despite this, however, we still expect payment problems to increase in the coming months, given the weak economy and jobs market.

“The survey also reported a small reduction in mortgage availability in the second quarter, mainly due to an unexpected deterioration in the cost and availability of funds for lenders themselves. More encouragingly, however, the survey found that lenders expect mortgage availability to improve modestly in the next three months.

“There have been recent signs of an improvement in wholesale funding market conditions, and the survey records a notable pick-up in lenders’ expectations that this will continue in the next three months.”

The Bank of England, otherwise known as the Old Lady of Threadneedle Street, is the United Kingdom’s central bank . The Bank was founded in 1694, nationalised on 1 March 1946, and gained independence in 1997. It is the centre of the UK’s financial system. In addition to maintaining the Bank Rate paid on commercial bank reserves at 0.5%, their Monetary Policy Committee (MPC) is also going to continue its programme of asset purchases totalling £175 billion financed by the issuance of central bank reserves. That programme is expected to take another two months to complete.