Interest rates have already come down in the US and many are hoping that rates here will not be far behind.

Certainly it appears that contrary to last year, interest rates are likely to fall, the only question is when. There are very few analysts who still believe that there will be any further increases.

In recent announcements the European Central Bank has not been dropping any heavy hints about likely increases but it also does not appear to be in a mood to follow the US any time soon.

As a result, traders in the money markets are already betting that rates will fall later in the year and as a result fixed rates have already started to come down. In many cases one and even two year fixed rates are available at the same price as variable rates.

For example, variable rates from a number of lenders are around 5.6 per cent or 5.7 per cent with two year fixed loans also available at that price. One year fixed loans are even cheaper, with many lenders discounting these loans in an effort to boost business.

According to Mr Richard Eberle, director at Rea Mortgage Services, existing customers are effectively subsidising new customers for many of these deals. Official interbank rates are currently 4.75 per cent. In the past, mortgage lenders insisted they had to add at least 1.5 percentage points to that rate to cover their costs. Some of the one year loans are available at under 5 per cent and thus must be loss leaders for the lenders concerned. In general they are simply not available to existing customers, who lenders say got their own good deals when they first gave the lender business.

In EBS, for example, the variable rate for new customers is 6 per cent but it is offering 4.9 per cent as a one year fixed rate. The same is true of Bank of Ireland where the variable rate is 6.1 per cent and the one year fixed rate is 5.6 per cent.

In normal circumstances this would mean that the markets expect variable rates to fall. However, the discounts are so substantial that it is unlikely the variable rate will fall that much.

The decision is more difficult if you are using Rea, as it rebates all commission and charges a fixed fee of £1,500 which includes conveyancing. As a result many borrowers will opt to go with the lender who pays the highest commission and some can see rebates of up to £1,500 on a £150,000 loan. But these are likely to fall as margins are squeezed and so are commissions. Both AIB and First Active have recently cut their commission, according to Mr Eberle.

Most borrowers are now opting for discounted one year fixed or variable rates. The important thing to remember after that is where the rate is likely to be after this initial honeymoon period is over.

With no real guarantees in place, although Bank of Scotland says it will never be more than 1.5 percentage points above the official rate, the current variable is the only real indication. But the cheapest in the market now is not necessarily going to be the cheapest when you come out of a fixed rate in a year or two. In the past EBS was consistently the cheapest lender but since the arrival of Bank of Scotland it can no longer claim that.

Another factor to consider is flexibility. With fixed rate, the main danger is getting stuck at too high a rate or being penalised for making early repayments. First Active has got over this by allowing customers to switch from a fixed rate to a variable rate without any charge. Most in the market expect many new innovations along these lines from most lenders over this year.