About 95% of all mortgages are fixed rate with the threat of interest rates rising and homeowners want certainty in the future.

The bank of England has warned that interest rates will be increased from the current 0.5% level to as high as 3% over the next three years.

Fear of an interest rate rise has encouraged first time buyers, remortgage buyers and home movers to secure fixed rates rather than the cheaper tracker and discounted rates.

Lenders changing mortgage costs

Lenders have also been increasing the cost of fixed rate mortgages in anticipation of higher interest rates with a typical three year fixed deal now 3.91% up from 3.83%.

In contrast, tracker mortgages that change in line with the bank of England interest rates have decreased with a typical deal now 2.82% down from 3.42%. This is the lowest tracker rate in the last six years.

This reflects the higher risk that the cost of a tracker mortgage will increase compared to the certainty of the fixed rate mortgage.

However, the risk of higher interest rates is now less after the inflation figure fell to 1.7% in February, the lowest level since October 2009. The Bank of England can take more time before a rate rise is necessary expecting this to be in the first quarter of 2015.

The equity release mortgage buyer can secure fixed rates typically from 5.9% upwards without any evidence of earnings, important for borrowers with only pension income.

Bank focused on housing market

The Bank of England is ready to take action to slow the booming housing market after the financial policy committee (FPC) reported mortgage demand to January is up by 40% and house prices higher by 10% in February compared to a year earlier.

The FPC has stated “mortgages at loan-to-income ratios above four times accounted for a higher share of new mortgages in the third quarter of 2013 than at any time since the data series began in 2005”.

If a larger mortgage is not possible, the only option is for remortgage buyers to stay in their existing home and continue saving more for a bigger deposit.

Lenders will be required to carry out stress tests in the event of increased interest rates or falling house prices to avoid another property bubble.

What are your next steps?

Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.

For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to help maintain your standard of living as costs rise or help your children start or expand a business.

Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart.

Use your dashboard to access online mortgage quotes, money off vouchers and start your mortgage application online 24/7 on desktop, tablet or smartphone.