A recent report has stated that the average cost of a fixed rate mortgage is still increasing despite the cut in interest rates in December.

The report, compiled by moneysupermarket.com, has shown that the average interest rate charged on a fixed rate mortgage across the market as a whole was 7.3% in the first weeks of December, prior to the Bank of England’s decision to cut interest rates by 0.25% to 5.5%. Since that cut however, average fixed rate deals have actually increased marginally to 7.31%.

The group did say, however, that there were still good deals for some borrowers with an unblemished credit history with rates as much as 0.39% lower than they were a month ago. But, it added, with more and more people having some form of credit history problems it is likely that most people looking for a new fixed rate deal would now have to pay more.

Fixed rate mortgages, unlike tracker or standard variable rate deals, are not based on the Bank of England base rate but on swap rates. Despite this, it is widely expected that fixed rate deals will have to eventually come down to reflect a fall in the cost of borrowing.

The head of the mortgage department at moneysupermarket .com Louise Cumming said: “Our data shows that a new fixed rate deal will almost certainly cost you more unless you are a low risk borrower.”

“I shudder to think what would have happened if the Bank of England hadn’t cut interest rates.”

“Much to there annoyance, many home owners who waited for the interest rate cut before taking out a new deal are actually going to be worse off.”

There is however some good news for those people looking to take out a loan with evidence suggesting that rates charged on these are now falling having risen for most of 2007.

Moneyfacts.co.uk, the financial information group, said that five lenders including Barclays, Britannia Building Society and Alliance and Leicester had slashed their borrowing rates by as much as 3% in the first half of January.

Personal finance analyst at moneyfacts.co.uk Ester James said: “For most of 2007 we saw rising loan rates, with the demise of the sub 6% personal loans and the market finally settling towards the end of the year with the best deals being around 6.5% to 7%. But as 2008 starts there would appear to be good news for borrowers as rates begin to fall.”

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