ALTHOUGH fixed-rate mortgage rates are falling, it may not be too late for those who applied for a more expensive fixed-rate loan a few months ago to cash in on the new lower rates. However, the big decision for people looking to apply for a home loan now is whether to go for a fixed or variable-rate deal.

Fixed-rate mortgages are priced according to swap rates on the money market, which reflect the City’s bets on future interest rates. Swap rates were climbing earlier this year, as many economists felt that further interest-rate rises were likely. Two-year money hit 5.19% in March and hovered around 5% until May. Consequently, the typical cost of fixing your mortgage for two years was about 4.99%. Five-year deals have been similarly priced because economists believe the interest-rate environment will be stable for a few years.

But over the past couple of weeks swap rates have started to tumble. Minutes from June’s Bank of England monetary policy committee meeting revealed that two members voted for interest rates to be cut by 0.25 points. This sent shares soaring and swap rates started to fall.

The falls continued last week when figures from the Office for National Statistics revealed that economic growth was slower than expected in the first quarter of the year.

This will put pressure on the Bank of England to cut interest rates sooner rather than later. A Reuters poll showed that nearly 40% of economists believe the first rate cut will come in August.

At the Sunday Times Roundtable discussion on the property market last week, the consensus was that there would be two rate cuts this year.

Ed Stansfield at Capital Economics, a think-tank, said: “I think we’ll see the first rate cut in August and then probably another before the end of the year, with base rate possibly falling to 3.5% by the third quarter of next year.”

Two-year swap rates are now 4.37%, with five-year money at 4.4%.

Consequently, many lenders have been cutting their fixed rates and more are expected to do so. Newcastle building society has the cheapest two-year fix at 4.38%. The best five-year deal is Portman building society’s, at 4.5%.

Anyone who has recently applied for a fixed rate may be annoyed that they have come down so much. However, if your application has yet to complete, you may be able to switch to one of the new lower rates.

David Hollingworth at L&C Mortgages, a broker, said: “Not all lenders will let you do this. If they do there may be costs, so you will need to work out if it will be worthwhile.”

Northern Rock will not let you change products after application, but Intelligent Finance will allow you to switch without any further fee. Alliance & Leicester charges a £195 switching fee and Halifax may make an additional charge if the arrangement fee of the new product is higher than the one you first wanted.

Even if there is a fee to pay, switching to another product could still work out cheaper. Nationwide charges an extra £389 if you change products part-way through an application, but it has reduced its fixed rate three times in the past couple of months. In April its two-year fixed-rate was 5.19%; it is now 4.49%. Someone with a £150,000 interest-only mortgage would save £1,711 over the two years by switching to the cheaper deal.

If you want a mortgage now, you need to choose between a fixed or variable-rate deal.

Simon Tyler at Chase de Vere Mortgage Management, a broker, said: “The cost of fixed and discounted variable-rate deals is almost identical, so people who want the peace of mind that fixed rates offer are getting value for money.

“If you are happy to gamble, however, a discount or a tracker will work out cheaper if interest rates fall.”