ALTHOUGH the Bank of England decision to leave interest rates unchanged at 0.5 per cent buys time for overstretched borrowers, the nagging questions remain: when will rates rise, and how fast will they climb?

An early rise seems unlikely.

If rates rose quickly, banks would face rising bad debts on mortgage business and corporate loans. This could see the work they have done to rebuild their finances since the crash of September 2008 soon unravel.

One leading fund manager, Neil Woodford, managing £20bn of savers’ money as Invesco Perpetual’s head of investment, predicts rates will stay low for a very long period.

Ray Boulger, at mortgage brokers Charcol, says: “The consensus among economists is that the Bank rate is unlikely to go up until mid-2011 at the earliest, and I would not be surprised if it was still stuck at 0.5 per cent in December 2011, because the economy is in such a mess.”

Bruce Riach, at Riach Independent Financial Advisors, sees dangers ahead too. He said: “Things will not stay this way for ever. If the predictions are borne out, people on variable rate mortgages could see a big rise in repayments within a year or two.

Rates will probably go up before the end of this year, but not by much.”

David Hollingworth, at London and Country Mortgages, said homeowners should consider two approaches, adding: “They should consider how well they will cope with future hikes and higher mortgage payments. Those who dislike uncertainty will be eyeing cheap fixed rates to gain medium to longer-term security.

“Secondly, borrowers should also consider overpaying while rates are low, to cut debt more quickly and improve their position when rates begin to lift.”

Some might be tempted to switch lenders to secure one of the attractive deals unveiled in recent weeks. Online bank first direct has a twoyear repayment tracker at 2.19 per cent (1.69 per cent above the Bank of England rate) with a £99 fee. HSBC, parent company of first direct, offers a 2.19 per cent tracker until October 31, but these loans come with a loan to value (LTV) limit of 65 per cent and 60 per cent respectively.

Norwich and Peterborough BS (N&P) has a best buy tag on its five-year fix at 4.49 per cent, with an 80 per cent LTV limit. But potential costs to consider include the £995 fee, early repayment charges in each of those five years, and a ten per cent limit on the amount of capital repaid without penalty each year.

For an 85 per cent LTV limit, the N&P fix costs 4.99 per cent.

For borrowers who accept a 75 per cent LTV, Accord (part of Yorkshire BS) has a 3.99 per cent fix until October 31, 2015, with a stonking £1,995 fee.

Customers need to lock in for the full five years to spread the impact of that fee.

Borrowers needing only a 60 per cent LTV should note HSBC’s repayment-only mortgage which is fixed at 3.94 per cent, with a £99 fee.

HSBC, which does not deal through mortgage brokers, is chasing first-time buyers with more deals: a market-leading tracker at 3.69 per cent above the Bank of England rate (currently 4.19 per cent), and a two-year fix at 5.09 per cent.

Both deals require a deposit of only ten per cent of the property’s total value and have a fee of only £99.

Mr Boulger said: “While there may be better value to be had by staying on good standard variable rate (SVR) or a competitive tracker for a little longer, the trick will be to switch to a fix some way ahead of that first rise.”

Since the credit crunch, the level of the borrower’s equity has become the decisive influence on mortgage rates: best deals are at the 75 per cent LTV limit or below, and each additional five per cent on the LTV adds 0.5 per cent to the mortgage rate.

While SVR borrowers at Nationwide and Cheltenham & Gloucester know their mortgage rate cannot exceed the Bank of England rate by more than two per cent, those with other lenders are more exposed.

Skipton BS hiked its SVR from 3.50 per cent to 4.95 per cent in March.

Most SVR borrowers who owe less than £50,000 have little incentive to switch lenders, due to the costs involved. But if your SVR is above 5.5 per cent, and your LTV limit is below 75 per cent, you could probably get a cheaper loan elsewhere. The average SVR is about 3.5 per cent. Borrowers with significant savings, or earning sudden lumps of money from bonuses or selfemployed earnings, might also consider an offset mortgage.

Attractive offset deals include a five-year fix from Accord at 4.29 per cent, up to 75 per cent LTV and with a £995 fee. Accord has a ten-year fix at 5.14 per cent until October 31, 2020, again with 75 per cent LTV and a £995 fee.

Also available as an offset is the discounted SVR loan from Clydesdale, discounted by two per cent until November 30, 2012, to make an effective pay rate of 2.59 per cent (SVR 4.59 per cent). The LTV limit is 65 per cent, the fee £999, on a minimum loan of £100,000, with free valuation and legals for remortgagers. There is no early repayment charge and borrowers can switch to a fix at any point without penalty.

Pound notes

IF only shell-shocked Northern Rock savers who queued on the High Street to withdraw £10,000 from the stricken bank on September 14, 2007, had steeled themselves to buy gold with the cash, muses Adrian Ash at Bullion In three years, their investment (including all purchase and storage costs) would have grown to an impressive £22,929 – a 119.6 per cent return.

For more information call 020-8600-0130 or visit bullion ● Holiday companies fleece cash-strapped Brits by charging up to five per cent on bookings by credit card, claims, and this surcharge can add up to £100 to the cost of a £2,000 family holiday. The survey found one operator, 118 Travel, charges five per cent on AmEx cards, and three per cent on other credit cards.

● New university students this year could spend as much as £3,500, largely on electronic gizmos, before they hit the campus, says the global consumer technology website eXpansys.

Let us hope mum and dad hold an M&S Premier Home Contents insurance policy, which means their little darlings enjoy unlimited cover for their possessions while living in student accommodation.

For more information, call 0800-068-2742, or visit insurance.