There was a time when a fixed rate mortgage could provide you with more security than Arsenal’s back four.

Sadly it appears that those days are disappearing fast.

That is because the cost of fixed-rate mortgages has hit a 10-year high; and it looks like it could climb further.

Fixed rate mortgages always been popular because they give you the security of fixed monthly repayments over a certain time period. It makes your living costs easier to manage every month, although you do have to remortgage on a regular basis. 

What has been happening to fixed rates?

A string of mortgage lenders have been hiking their rates in recent weeks, blaming the moves on the increase in money market rates.

Nationwide became the latest on Monday to unveil a hike in the cost of some of its fixed rate and tracker rates; by up to 0.5%. Halifax, the Woolwich and Abbey have also hiked the cost of some of their deals in the past fortnight.

All of this activity has led to the average 2 year fixed rate rising to 6.75%; the highest in a decade, according to price comparison website Moneyfacts.co.uk.

The average 5 year fixed rate mortgage is only slightly lower at 6.72%.

Darren Cook, a mortgage expert at Moneyfacts, warned that this big jump in the cost of fixed-rate mortgages would hit a lot of us:

"The curse of Friday 13 bought more pain for borrowers as swap rates reached a new high of 6.49%. With lenders having to pay such a huge price to secure funds and a lag time of a few weeks before this cost is passed on to mortgage customers, the situation is likely to get worse before it gets better," he said.

Cook warned that with the average standard variable rates (SVR) now costing 6.66%, those of you needing a mortgage were facing a stark choice.

What will happen to fixed rate mortgages?

Online mortgage company mform.co.uk believes fixed rates of below 6% will disappear over the next few weeks as dramatic swings in money markets take their toll. This is because rate for mortgage lenders to secure cash on the money markets for 2, 3, and 5 year deals have gone up by 0.44% in the last month alone.

Francis Ghiloni, of mform.co.uk, said those sub-6% fixed rate mortgages that survive are likely to come with hefty arrangement fees in the future, as mortgage lenders seek to maintain their profit margins.

For example, Skipton Building Society has a 5.79% two-year fixed rate mortgage, but it comes with a £998 fee; this makes the true annual percentage rate more than 6%.

Those of you that played safe and opted for fixed-rate deals in 2006 were getting rates close to 4.5% back then (ah the good old days eh?) 

Other lenders offering competitive deals, such as Abbey, have increased their fees to £1,000 and cut the maximum amount they will lend you.

The Woolwich has already withdrawn its 2 year fixed-rate mortgages while Nationwide's increase now takes its most expensive 2 year fixed-rate deal to 7.85% for those of you borrowing between 90% and 95% of your property's value.

However, as fixed rates soar, it means that many of you are in for a shock when you come to finding a replacement deal. Many of you forced on to your lender's standard variable rate (SVR) could see your payments rise by hundreds of pounds a month.

Fixed rates similar to SVRs

The credit crunch has seen the unusual situation of fixed and tracker rates being much in line with standard variable rates (SVRs), which banks and building societies normally charge only when you come to the end of a special deal.

As a result, some lenders (such as Royal Bank of Scotland, Halifax, Lloyds TSB and C&G), have all stopped offering their SVRs to new customers.

So with the fixed rates reaching a high price; can you still get a good deal?

Yes you can; and you should use an impartial adviser who can search all mortgage lenders in order to find you the the best mortgage for your current circumstances.

So, it appears that fixed rate mortgages have become popular again; it's just a shame that the security they provide comes at such a high price.

(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)

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