Since October last year, we have seen a dramatic fall in the Bank of England’s base rate of interest for savings and loans.

The rate has reduced from 5 per cent in October last year, to a record low of 0.5 per cent. It is hardly surprising therefore, that there has been a huge increase in the number of people who are applying for a fixed rate deal when they are looking for a new homeowner loan or secured loan. New research from Legal & General has shown that between December last year and February, 72 per cent of all new homeowner loans were taken out on a fixed rate basis, compared with only 65 per cent over the same period the previous year.

With the base rate as low as it currently is, it makes complete sense to opt for a fixed rate loan at the moment, although borrowers are likely to be paying a significant margin above the base rate, as lenders cover themselves against future rate increases. Anyone applying for a fixed rate secured loan should be wary of the fact that if interest rates increase (which is extremely likely), they could be in for a nasty shock with their monthly loan repayments once the fixed rate period has expired and they should budget for this increase when they take out the loan initially.

Stephen Smith of Legal & General said “Fixed rate pricing has only really started to come down in the past few months and even then only for those borrowers with a hefty deposit. The gap between what you’d pay with 40 per cent deposit compared to what you’d pay with a 5 per cent deposit is still significant. However, fixed rates are very much back in favour, partly because lenders have been increasing the margins on their new tracker mortgages. The challenge though Is to try and convince a borrower on a low SVR to remortgage to a higher fixed rate to insure against the inevitable rate increases which the Bank of England will instigate at some point to combat the threat of inflation.”