For the right mortgage read between the lines

SOME areas of the country have become almost off-limits to first-time home-buyers after the surge in property prices over the past couple of years.

According to Halifax, 92 per cent of the UK's main postal towns are now not considered to be affordable for people wanting to buy their first property. And even if would-be homeowners can afford their dream home, so-called "mortgage-phobia" is reported to be taking its toll.

Alliance & Leicester mortgages' quarterly "Movingimproving Index" has revealed that more than six million Britons would rather rent than buy, and nearly half (47 per cent) of those who would rather rent are nervous of getting on to the housing ladder because they fear the cost of a mortgage.

But the news is not all bad. House prices are starting to stabilise, allowing home-buyers' wages to make some headway towards catching up with house price inflation. Yet the increased competition between lenders has the effect of putting a brake on lending rates.

While the recent quarter-point drop in the Bank of England base rate may have had a less- than-spectacular effect on some variable rates, fixed-term rates from many lenders - which are determined by the "swap" rates at which banks lend money to each other - are still looking appealing.

WHY NOT PICK A FIX?

Among the rates to come down recently is Portman's two-year fixed rate, which has fallen from 4.34 per cent to 4.20 per cent, making it the lowest two-year fixed rate on the market.

Meanwhile, Bank of Ireland has cut its two and three-year fixed rates from 4.55 per cent to 4.35 per cent. Among other good deals are Nationwide, which has a two-year fix at 4.39 per cent, and Scottish Widows, whose two-year fix is 4.49 per cent.

Among the longer-term fixes, the newly-named Leeds Building Society (formerly the Leeds & Holbeck) has a ten-year deal at 4.65 per cent, and Britannia and Yorkshire both have offers at 4.74 per cent.

SHORTER CAN BE SWEETER

First-time buyers tend not to stay in their first home very long, so although ten-year fixes may look tempting, borrowers should not be looking at longer-term deals unless they are sure they will stay put or the loan is fully portable, as redemption penalties may be imposed if the loan is paid off early. These penalties can outweigh the benefits of an otherwise attractive rate.

Watch out, too, for weighty valuation fees and booking fees on special deals, which are usually non-returnable even if you don't go ahead with the loan.

OUT FOR THE DISCOUNT

If you are wary of going for a fixed rate, a discounted rated might be more suitable.

Internet bank First Direct has just launched what it is dubbing its "cheapest ever mortgage" - a discounted variable rate loan at 2.99 per cent until May next year. At the end of the discount term, borrowers pay the standard variable rate - at present a competitive 5.5 per cent.

AS MUCH AS YOU CAN AFFORD?

A number of lenders including Alliance & Leicester, Halifax, Nationwide and C&G are helping first-time buyers by scrapping the traditional income rate multiples on which lending decisions are traditionally based, and instead using a measure of "affordability" - the borrower's ability to pay for a mortgage based on an assessment of their income compared with their other outgoings and existing debt.

Under this system, single people with no liabilities will tend to come off better; those with children and existing debts will do less well.

• Willie Ewen, AWD plc www.awdplc.com

For more information, visit www.moneyextra.com

The views and recommendations in the above article are those of AWD plc and have been obtained from a variety of sources. This article does not constitute mortgage advice, and does not attempt to give you advice that relates to your specific circumstances. Financial products mentioned are intended to give you general information only.