Many could buy homes for much less than they now spend on paying rent.Gary Marsh, head of corporate affairs at Halifax Building Society, says: "For those who are in the market, price is not their main concern. They can afford to pay a little bit more to get what they want."The imbalance between supply and demand can be seen in the surprising strength of prices this spring. The Halifax house price index has shown four consecutive monthly rises of around 1 per cent, prompting the society to increase its 1996 forecast of house price rises to 5 per cent. While this may seem paltry beside the huge rises seen in the ultimately disastrous boom years of the 1980s, it should be enough to build confidence among those who put off a purchase through the long recession and have remained cautious during the economic recovery.Rob Thomas, housing market analyst at City investment bank UBS, believes the strength of the Halifax index is so compelling that he is thinking of raising his own forecast for this year to 6 or 7 per cent He also expects prices to keep rising next year and in 1998. He says: "We've got an economic upswing continuing well into next year.

We're in the late part of the recovery - that's the time the housing market is most likely to be strong. This year, the market should also benefit from the tax cuts made in the last Budget."Mr Thomas estimates that the difficulties of the past eight years have persuaded about 500,000 first-time buyers to delay their move into the housing market This represents substantial pent-up demand. If they began buying in significant numbers, they would give further impetus to the housing recovery.As house prices rise, the negative equity problem will rapidly diminish. On UBS estimates, the number of home owners whose mortgage debt exceeds the value of their property will fall from just less than 1 million now to about 260,000 by the end of next year.So far this year, the total number of house purchases and sales has remained relatively modest. One concern is that the market is being held back by some over-ambitious vendors. As prices start to move upwards after a long period in the doldrums, some are testing the market by setting asking prices a little above their "true" value.Black Horse Agencies' Mr Wood suggests this may be an inevitable feature of a turning market.

"Purchasers are still nervous because of the history of the early 1990s," he says. "The difficulty is matching the expectations of vendors and buyers.". With Labour odds-on favourites to win the next general election, many homeowners are wondering if this is the time to fix their mortgage rate to guard against interest-rate rises. Phillip Cartwright of Bath-based mortgage brokers London & Country says: "A lot of people take the view that [because] there's going to be a Labour government, rates are going to go up. They forget that, in the early Nineties, it was a Conservative government that put rates up to 15 per cent." In fact, a general election usually brings a rise in rates no matter which party wins power.This happens for three reasons.

First, governments are reluctant to raise rates in the run-up to an election, as they know this will be unpopular. The Government will also tend to let public spending run a little more freely as the election approaches, creating a need to dampen down the economy once it is over. Lastly, incoming governments like to make unpopular moves - such as raising interest rates - as early as possible.Most commentators agree that interest rates are at, or very close to, the bottom of their cycle. Ian Knight of independent financial adviser Berry Birch & Noble says: "The one thing I don't think is going to happen is that base rates are going to fall much further. They may fall by another quarter to a half percentage point before the election, but that would certainly be reversed immediately thereafter - irrespective of who wins."Equally, few expect dramatic rises in rates. But some borrowers will still appreciate the peace of mind which a fixed-rate mortgage can offer. The problem is finding the right deal.Your existing lender should be the first stop, but don't be surprised if the most attractive deals are reserved for new customers.

Remortgaging to a new lender can cost you up to pounds 1,000 in legal and other fees, and you may have to pay an early redemption penalty to close your existing loan.Ian Darby of John Charcol, a London-based firm of mortgage brokers says: "By the time you add up the all the costs of remortgaging to a new lender, it's unlikely that it's going to be worth your while. The first call you should make is to your existing lender to see if they'll do anything spectacular to keep you. Staying with the same lender wipes out redemption penalties and a good chunk of the costs of remortgaging."The best fixed rates available at the moment are around 4.75 per cent for two years, about 6.5 per cent for three and about 7.75 per cent for a five-year fix. After the fixed-rate period, the loan reverts to the lender's standard variable rate (see table of Best Borrowing Rates on page 18).When studying the deals available, make sure you read the small print. Most two- and three-year fixes will impose a hefty penalty on you if you go to another lender for as long as five years after your fix has expired This could leave you vulnerable just at the wrong time. Rates may not go up a lot in the next couple of years, but there is more uncertainty after that.An alternative to a fixed-rate deal is to go for one of the discounted variable-rate mortgages on the market. While the interest rate you pay will still move up and down in line with the base rate, at the outset it will be lower than the lender's standard variable rate.