House prices in the UK are up 3.9% for the year and homeowners are biased toward fixed rate mortgages ahead of an interest rate rise.

The latest report by the Nationwide shows Uk property prices continue to grow by 0.6% for the month to October and average house prices are now £196,807.

Over the year house prices are 3.9% higher and remain significantly below the recent peak of 11.8% growth per year reached in June 2014

According to Robert Gardner, chief economist at Nationwide, in the last five months the annual growth of property prices has remained from 3% to 4% which is consistent with long term earnings growth.

This suggests a sustainable growth rate in housing market activity although much depends on the supply of homes and building activity to keep up with increasing demand.

Fixed rate mortgages most popular

The most popular products for first time buyers, home movers and remortgage buyers are fixed rate mortgages with 90% of all new mortgages selected over the past twelve months.

The proportion of fixed rate mortgages has been increasing since 2010 when less than half were selected. The recent increase in demand is due to the uncertainty over a rise in UK interest rates by the Bank of England which have been at a record low 0.5% level.

First time buyers are more likely to have a fixed rate mortgages with 95% of new mortgage lending, locking into historically low interest rates.

According to Nationwide for those with a 25% deposit, the average two year fixed rate was 1.91% and this has reduced by about 2% since 2012.

The fall in interest rates to record lows has offset the rising cost of property making it more affordable for first time buyers and home movers.

With older equity release mortgage buyers, fixed rates can be secure without any evidence of earnings which is important for borrowers with only pension income.

For remortgage buyers higher prices give them an opportunity to release capital which they can use to improve their home.

What happens when interest rates rise

Robert Gardner has said variable mortgages such as discount or tracker rates have reduced from 70% in mid-2012 to about 50% in 2015.

With more first time buyers, home movers and remortgage buyers on fixed rate mortgages households are better insulated from the impact of higher interest rates.

Lower mortgage rates benefit buy-to-let investors as they can remortgage to reduce the cost of interest repayments to lenders.

However, the fixed rate mortgages are short term with 65% for two years and 305 for five years. In addition variable rates are still not at the low of 38% reached in 2007.

The Bank of England has suggested any interest rate rises will be gradual and remain somewhat below the level before the financial crisis.

Even so the housing market should be able to cope with any interest rate rise and as long as the increase is modest and the economy and labour market remain in good shape.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

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

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to repay an interest only mortgage or reduce inheritance tax owed by your beneficiaries.

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