The best deals if you must have a mortgage

With the average property now 9.6 times the average salary and the credit crunch making it much harder to borrow, now is not the best of times to be getting a mortgage. However, there is one quirk in the market that's worth exploiting.

The average UK property now costs a staggering 9.6 times the average salary, says the FT, which means that many of those who have bought a house in recent years are sitting on monster mortgages. Thousands are in for a nasty shock if they have to remortgage before Christmas as lenders pass on the five interest-rate rises since August 2006. Worse still, the recent credit crunch has seen a swathe of the more attractive mortgage products whipped off the shelves by lenders. reports that the total number of mortgage products available has fallen by 40% over the last three months, with a drop of 16%, even for customers with good credit ratings. It's also becoming harder to borrow, with a 60% rise in the number of rejections in the past six months. As a result, the best deals are being snapped up faster than discounted Wedgwood at a Harrods sale for example, the latest Dunfermline 5.29% two-year fixed deal sold out after only four days.

So, what's anyone seeking a mortgage to do in the current climate? First, some good news. While rates are higher overall than for some years, a quirk in the market right now is worth exploiting fixed and variable rates are virtually the same. Normally, fixed rates are higher (as they create more risk for the lender should their own funding costs linked to the base rate rise during the loan period). This won't last, so if your current fixed-rate is close to expiry, and you want to get hold of another, you should act now. Use a comparison site, such as best buys change weekly at the moment and then move fast to secure a deal. But there are a few traps to watch out for. As well as a low interest rate, watch out for arrangement fees, which have leaped in recent years. Lisa Taylor at says fees are averaging "around £700 to £800" just now, but "fees close to £1,000 are reasonable". However, lenders such as Halifax and Alliance & Leicester charge as much as £1,999 on low-rate fixes. Better value are Abbey, the Woolwich, or Britannia two-year products all offer sub-6% rates and a fee of just under £1,000. Alternatively, you could fix for a longer period Giraffe, part of the Bank of Ireland, has a three-year fix at 5.68%. It's not the best interest rate, but it comes with no arrangement or legal fees and it means you're getting an extra year before you have to remortgage again.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Lastly, check the small print and beware of what calls the "date trap". Current offenders include Bristol & West, whose two-year' deal actually only runs to 31 August 2009, and Coventry Building Society, whose five-year deal is fixed until 30 September 2012. Abbey plays fairer with a two-year 5.58% fix that ends in February 2010.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.