Confusion reigns in the mortgage game

There were some crazy goings-on in the mortgage market this week, including a series of price hikes and a bank that pulled almost a quarter of its new mortgages two days after launching them.

Bristol & West, the UK mortgage arm of Bank of Ireland, said on Thursday it was withdrawing seven mortgage products - mostly fixed-rate and buy-to-let deals - hours after they went on sale. The bank said it took the decision in response to "unprecedented volumes of business received during the past week". First Direct added to the confusion by raising the cost of what had been one of the UK's cheapest two-year fixed-rate mortgages.

All in, anyone trying to find a reasonably priced mortgage has been left struggling.

Nationwide kicked the week off by hiking the cost of many of its mortgages by up to half a percentage point. Woolwich was also among the banks that either withdrew or upped the cost of its products.

The financial data complier Moneyfacts confirmed many homeowners' worst fears when it revealed that mortgage costs have risen so sharply that two-year fixes are now at their most expensive for a decade.

First Direct, the internet and phone banking division of HSBC, has increased the rate on its best-buy two-year deal from 5.49% to 5.99% - and borrowers still have to stump up a 20% deposit and a £1,499 fee. The Woolwich's best-buy tracker (up to 60% loan-to-value) has risen to 5.99%, but it is still fee-free. Abbey, which increased its fixed-rate deals last week, reduced the cost of its trackers this week; they are now around 6% (up to 70% LTV), albeit with a £999 fee.

Prices have been changing so fast that homeowners who stop to check rates can soon find the best deals have disappeared. "It's all a bit crazy out there," said Ray Boulger at the broker John Charcol. "Some of these changes have been a delayed reaction to the big increase in swap rates last week." He says that despite the endless predictions of higher interest rates, he does not consider them inevitable. "I can't see rates rising by more than a quarter point - if at all. I'm predicting they will fall away quite considerably next year, making tracker deals probably the way to go, assuming you don't need the security offered by a fixed rate," he said.

He says Charcol is offering a two-year tracker at base rate plus 0.99% for those borrowing up to 80% LTV. The fee is £995.

According to the Moneyfacts tables, the best two-year fixed-rate deals are now offered by Skipton Building Society (5.79%) for new purchases only. For remortgages it is charging 6.09% with a lower LTV. Both deals carry £998 fees.

Meanwhile, if you have a relatively small mortgage, it may be worth considering ING Direct's standard variable rate, which is currently 6.59%, and fee-free. At a time when many banks have stopped offering new customers their SVR, this could be worth checking out.