It pays to do the maths before switching from a variable rate mortgage.

If you're one of the two million people in Britain currently sitting on their lenders' standard mortgage rate, it can seem as if everyone is trying to tempt you away. First there are the blandishments of your current lender, whose seductive letters offering you other products especially selected for their loyal customers aim to drag you onto a higher rate. Even if you can resist these, you may fall victim to panic over interest rates, or special offers on new mortgages.

Now there's a new kid on the block, the loyalty mortgage. These products, offered by Santander, the Co-op, Halifax and Barclays, offer reduced interest rates to current account holders, mainly on two-year fixed mortgages. But is now really the time to take the bait and move off your deal? Make sure you do the maths first.

The party is over for borrowers with tracker mortgages

Being on your lender's standard variable rate – the rate that your mortgage reverts to when your deal ends – used to be a terrible idea financially. Recently, however, staying put has begun to look like a smart move. Many borrowers with Nationwide, Cheltenham & Gloucester (part of Lloyds TSB) and Barclays are on ultra-low mortgage rates with no penalties if they choose to move their mortgages elsewhere. Increasing numbers of them are choosing not to move, with Nationwide reporting that 38pc of its borrowers are on what it calls its Base Mortgage Rate (BMR), which is 2pc above Bank Rate.

That number has rocketed up from just 14pc in 2008 and it is costing the company money. Nationwide estimated that its guarantee not to charge more than 2 percentage points above Bank Rate for its BMR cost it £450m last year. "It would be unfair to say that we are trying to get customers off the BMR – it simply isn't true," a spokesman said.

But if a mortgage deal is costing your bank money, it is probably good news for you, which is why you should think very carefully before moving away from the rock-bottom SVRs available at present. If you are on one of them, or if your mortgage deal is coming to an end now, there are some serious calculations to do before deciding whether to go onto a new deal or to stay put. Consider the options before you even think about visiting a mortgage broker.

Not everyone who is on their lenders' standard rate is paying a rock-bottom price. If your lender pegged its standard rate to the Bank Rate, then there's a good chance that you are one of the lucky ones, but you do need to check. "If your SVR is lower than 3.95pc you are getting a good deal," said Melanie Bien of Private Finance. However, some borrowers who are on SVRs with companies such as the Yorkshire Building Society or Woolwich are paying 4.99pc on their mortgages and could get a better deal with a fixed rate.

Even if you are with Nationwide or one of the other lenders with good rates, check the specific terms of your mortgage. Nationwide ended its guarantee to new borrowers that it will peg its variable rate mortgages to Bank Rate in April last year, so if you took your mortgage out after that you will revert to its Standard Mortgage Rate, which is 3.99pc

LOOK AT YOUR FINANCES

Mortgage brokers always talk about fixing your mortgage for "peace of mind". "It's horses for courses," said David Hollingworth of London & Country. "A five-year fix is good for the more risk-averse borrower – at least they will know where they stand." Five-year, fixed-rate mortgages are always touted as the one way to have certainty that you can pay your mortgage, but even if you're worried there are other ways to make sure you're financially secure.

Before you panic about rising rates, consider what each rate rise would mean for your monthly payments. For example, if you had a £150,000 interest-only mortgage you would pay £313 a month with Nationwide or Lloyds on the SVR. On one of the best five-year fixed rates of 4.19pc with the Yorkshire Building Society, you would pay £524. Interest rates would have to rise 2 percentage points before the Yorkshire deal looks like better value.

However, if you didn't take the fixed-rate mortgage, you could create your own security by saving the extra £211 a month you would have if you stick to the SVR in a savings account. If interest rates didn't rise for 12 months, you would have a £2,500 nest egg to protect yourself when rates did move, as well as a saving of £495 because you wouldn't have to pay an arrangement fee to fix your mortgage rate.

CHECK INTEREST RATE PREDICTIONS

A recent Telegraph survey of economists and mortgage experts revealed that most believe that Bank Rate won't rise above 1.5pc in 2011 and won't be above 5pc in 2015 (by which time your five-year fix would be close to expiry).

However, some outlying economists believe that rates could rise to 8pc or even 14pc. This is the dilemma for those on SVRs – if they back the wrong economists they could end up out of pocket.

DO THE MATHS

Ms Bien calculated that if interest rates rise by 0.5 percentage points in 2011, and then again by 0.5 percentage points in 2012, and then another 0.5 percentage points in May 2013, Bank Rate would end up at 2.5pc, as predicted by many economists. Over the five-year period, the SVR mortgage would cost £28,375 on an interest-only basis, compared with £31,425 on the Lloyds mortgage – this excludes any benefits you would make from investing the spare money or setting it off against your mortgage debt.

However, if interest rates do rise fast and steep, you could end up paying much more. He calculated that if rates rose gradually to 8pc by 2015, you will end up paying dearly for not fixing. A fix at 3.95pc on a £150,000 repayment mortgage would cost £47,257.20 over five years, but if you stayed on your SVR you would pay £61,143.53 over the period. That's an average cost of £1,091 a month, compared with £788 a month if you fixed the mortgage. However, if rates rise to just 2.5pc by 2013 and then remain there, you would pay less on the SVR mortgage – an average of £768 a month over the period. You also won't have to pay the upfront fees.

If rates rise later, you may want to get a fixed rate in later years, but the rates are unlikely to be as competitive.

IF YOU WANT TO FIX, GET THE BEST DEAL

If you've done all the maths and you still want to fix, make sure you make the right decision. The ''loyalty'' mortgages that are grabbing the headlines are all two-year fixed rates and, although some look competitive – the Barclays deal is at 2.95pc for up to 70pc loan to value – most specialists agree that fixing for two years is a bad idea. "This is the worst of both worlds," said Ms Bien.

This is because you would then need to find a new mortgage at a time when interest rates are projected to be much higher, so you'll be paying another set of fees for a worse product further down the line.

Instead, check out some of the better five-year, fixed-rate deals, which include 4.1pc from HSBC, which has a maximum loan to value of 60pc, and a booking fee of £599, and 4.19pc from Yorkshire Building Society on a 75pc loan to value with fees of nearly £500.

Housing market 'ground to halt' as number of new homes built 'fall to 1920 levels'

The number of properties being built has dropped to its lowest since the 1920s as the housing market appears to have ground to a halt, according to new figures.

Experts said the data suggested the house building market had ground to a halt and was "worrying, highly significant and consistent with a falling market".

The slump in construction has left Britain facing a shortfall of almost a million homes, the Home Builders Federation warned.

The industry body published figures on Friday that showed only 142,000 new properties were built in 2009, which was the smallest number since 1923, excluding the Second World War.

The figures also showed the number of people reserving new homes to buy had dropped to its lowest level on record. Deposits on new properties fell to levels not seen since 2008, the federation said.

The total net reservations were 3,353, five per cent lower than in the 2008 housing market and 22 per cent lower than at the same time in 2009 when house prices appeared to be recovering strongly.

Experts said the data suggested the house building market had ground to a halt and was “worrying, highly significant and consistent with a falling market”.

They warned that increasing housing supply was critical for improving social policy and the economy. Estate agents also said there were signs of a glut of existing homes for sale.

It added that tackling the supply crisis would also help to boost employment, with each new home built creating 1.5 full-time jobs, plus up to four times that number in the supply chain.

The HBF warned the shortage of new homes was forcing people to put on hold plans such as starting a family, while others were unable to move to areas needed for work or family reasons.

It said the average age of a first-time buyer who does not receive help from their family was now 37.

Almost a third of men and a fifth of women aged between 20 and 34 still live with their parents.

“House building is a British industry success that is responsible for hundreds of thousands of jobs across the country,” said Stewart Baseley, the Federation’s executive chairman.

"New homes are vital for first-time buyers and young families – and are also greener and so cheaper to run."

Sir Bob Kerslake, chief executive of the Homes and Communities Agency, added: "New homes are crucial not only for providing places for families to live but are the vital link in ensuring communities continue to thrive.”

Stewart Baseley, executive chairman of the Home Builders Federation, said: ''House building is a British industry success that is responsible for hundreds of thousands of jobs across the country.

New homes are vital for first-time buyers and young families – and are also greener and so cheaper to run.

Sir Bob Kerslake, chief executive of the Homes and Communities Agency, said: ''New homes are crucial not only for providing places for families to live, but are the vital link in ensuring communities continue to thrive, whether through jobs generation, training opportunities and, at its most basic level, simply transforming places.'' 

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