Bewildered by huge adverts of banks and building societies competing fiercely to give them a mortgage, would-be homebuyers might think their big problem is choosing between the 3,000-plus home loans that are usually on offer.

However, the Government report from Professor David Miles says first-time buyers themselves are the big problem in the mortgage market because they - and the regular ''rate tart'' remortgagers - enjoy cut-price deals at the expense of other homebuyers who do not bother to switch to the lowest possible rate.

Professor Miles says the mortgage market, though not anti-competitive, fails to serve some borrowers as efficiently as it could. After he has consulted the Office of Fair Trading (OFT) and Financial Services Authority (FSA), new rules may be drawn up to make things go a little better.

But surely there are bigger issues in personal finance to worry about.

There's certainly an acute lack of supply in a housing market soon to be entangled by more bureaucratic red tape - mortgage codes and sellers' packs. But mortgage supply has hardly been a worry since Mrs Thatcher ended the building societies' cartel 20 years ago.

If first-timers and others use consumer power to get the best deals, so what? When prices rise fast, first-timers have the biggest loans and are usually subsidised by older people lucky enough to have built a huge slab of equity in their own properties simply by sitting tight for a decade or more.

With the mortgage price war as fierce as it is now, however, there is little chance of significant take-up of 25-year fixed rate loans, which appeal so strongly to the Chancellor.

Though Professor Miles believes some buyers would be better off on fixed rate deals, David Bitner, head of product operations at The MarketPlace at Bradford and Bingley is one financial advisor who disagrees.

He points out that the difference between current discount variable rates and 25-year fixed rates is presently about 2.5 per cent - meaning interest rates must rise by this much before borrowers pay more on variable rates than on a fixed one.

On a £100,000 mortgage, a borrower switching from standard variable rate to a cut-price deal could currently save about £2,000 a year, or £50,000 over the life of a mortgage. So why bother with a ''fix''?

Stuart Glendenning, director of mortgages at moneysupermarket.com, agrees: ''The past few years have seen declining interest rates. Borrowers with long-term fixes would not have benefited and would have had to remortgage - which usually bears a cost.

''Even when rates are rising and the "insurance" of a long-term fix is valuable, in most cases, the interest rate cycle is such that shorter-term fixes offer similar protection.''

There is the added consideration that first-time buyers rarely stay put for long - so the cheapness of a loan is more important to them, particularly in a rising market, than long-term cost. Perhaps a 25-year fix is only sensible when their likely long-term earning level is established.

It could be risky, at this stage in the cycle, to take any official action that drives the cheapest loans from the market. Buyers who stretched the income multiple dangerously in recent years to board the housing bandwagon, particularly in London and other hotspots, could hit difficulties if rules changed significantly.

At financial advisors Baronworth, in Ilford, Essex, Colin Jackson believes buyers are confused by the flood of mortgage offers.

His company provides an annual mortgage review and of life policy premiums linked to home loans.

He says: ''In fewer than 50 per cent of cases does it make much sense to switch lenders. Borrowers may be locked in by redemption penalties, or their income may have fallen since they fixed the loan. Self-certification mortgages, when a borrower states their own income, may not help because rates tend to be higher.''

However, Baronworth's checks invariably find scope for cheaper life cover - and the saving adds up over the years.

So keep shopping for the lowest loan rate, whatever Professor Miles might suggest. And don't forget there may be other savings that the lenders are unlikely to mention.

Published: 16/12/2003