Best Mortgage Direct - 0845 194 7102

So the banks are telling everyone to fix their mortgages and the public are saying should I  fix my mortgage or stay on a tracker for a bit longer.

Warnings from the experts say that inflation will rise rapidly and force interest rates to rise.

However, homeowners on low variable-rate deals may be comforted to know that even some of Britain’s top economists do not see the value in switching to a fixed rate mortgage.

With the Bank of England widely expected to leave official interest rates on hold at 0.5% for the fifth month in a row on Thursday, A leading newspaper asked some of Britains top economists what they do with their own mortgages.

Martin Ellis, chief economist at Halifax, Britain’s biggest mortgage lender, and Simon Rubinsohn of the Royal Institution of Chartered Surveyors were among those on variable deals, which rise and fall in line with Bank rate — yet none of them had any intention of fixing their mortgage interest rate.

Not everyone would ebter into the debate about their own finances — economists at Nationwide, Standard Life Investments, Deutsche Bank and Collins Stewart, for example, would not take part. I wonder why?

The survey found that those wanting to buy now had slightly different view.

Those who were looking to remortgage may have missed the cheapest mortgage deals, for now, though those who are buying still prefer to fix, according to Mark Harris of Savills Private Finance, the independent mortgage broker.

Bank of England data last week showed that the average five-year fixed-rate mortgage for borrowers with a 25% deposit rose 0.61 percentage points in June to 5.54%, adding £1,220 to the cost of a new £200,000 loan. Mortgage rates for two-year and three-year fixes also rose significantly. Here, we look at what the experts are doing with their mortgages.

Stuart Thomson, Ignis Asset Management Thomson, an economist at Ignis — the Glasgow-based fund management firm formerly known as Resolution Asset Management — argues strongly that deflation is a bigger threat than inflation. Interest-rate rises are therefore “very far in the distant future”, he said, adding that he will be paying his lenders’ standard variable rate (SVR) for the foreseeable future on his three mortgages.

For his main home in Glasgow, he took out one of Halifax’s two-year fixes in 2006, but is now paying its SVR of 3.5%. While this is not the lowest rate available — HSBC offers a two-year tracker at 2.49% — he said that HSBC’s £799 arrangement fee would wipe out much of the savings from switching.

He is doing even better on his two buy-to-lets, with Mortgage Express, the broker-only arm of Bradford & Bingley, which has been government-owned since September.

He is paying an SVR of only 1.75% over Bank rate, or 2.25%, so the rental income on the properties, in the prime London areas of Fulham and Clapham, comfortably covers his entire mortgage repayments.

He said: “Fixed-rate loans have already priced in substantial interest-rate rises over the next two years — you are paying an awful lot for that insurance unless you believe interest rates are going to rise even more rapidly, which we don’t.”

Simon Rubinsohn, Rics Rubinsohn, Rics’ chief economist, believes rates will rise, but not by very much. He took out a current account mortgage — similar to an offset — with Royal Bank of Scotland when he bought his house in north London in spring 2005. The arrangement allows him to put the interest earned on his savings toward reducing the interest on his loan. He said: “I think rates may go up a bit, but the outlook is pretty benign. We don’t expect rates to rise until 2010 and then by only half a percentage point.”

Peter Spencer, Ernst & Young Item Club Spencer is the chief economic adviser to the respected independent economic forecasting group. Spencer was fortunate enough to take out a Bank rate tracker with a margin close to 0.5% above Bank rate. He hopes to pay off his mortgage soon.

The Item Club believes that Bank rate will stay at 0.5% until the end of 2010.

Spencer said: “Inflation will be pinned to the floor by the weight of the profit margins banks are charging on the cost of loans. The spreads banks are charging for fixed-rate loans are scandalous.”

James Butterfill, HSBC Private Bank Butterfill, an economist, sold his home in London last summer and had been renting while he waited for property prices to hit bottom — which he believes they now have. Last week, he bought a house in Clapham.

HSBC’s, rather than the Bank of England’s, view is that house prices will be “stagnant” for the next year-and-a-half, but Butterfill decided to buy now to take advantage of cheap mortgage rates. He secured a three-year fix from the Royal Bank of Scotland at 3.95%.

For buyers, there is not much between three-year fixes and trackers — indeed, the best long-term tracker is only slightly cheaper than Butterfill’s fix, at 2.99% from HSBC.

Butterfill concedes that a three-year term is a bit of a “gamble” as the view is that this is precisely when inflation will rise. He said: “Inflation expectations depend on good central bank policy. I am gambling on the fact that the Bank of England does not make policy errors. Then, hopefully, I can cherry-pick from some more attractive mortgages in three years’ time.”

Martin Ellis, Halifax Ellis took out a tracker four years ago and while he anticipates Bank rate will rise to 1% in 2010, runaway inflation is “a long way off” — if it occurs at all. “I think it’s going to be some time before rates rise much beyond that,” he said. “We’ve seen some pretty bad economic figures recently and we are expecting sluggish growth for some time.”