The number of remortgage buyers increased by 30% in June as homeowners change to cheap fixed rate loans before interest rates rise.

Data from the Land Registry shows the number of remortgage buyers increased to 31,600 in June up 30% month to month and by value borrowed £5.1 billion.

Some 78% of UK homeowners expect the Bank of England to raise interest rates in the next year and 48% for this to happen in the next six months, according to the Markit Household Finance Index.

The British Bankers Association (BBA) has said the number of homeowners moving to low fixed rate mortgages are now at its highest level for four years.

However, although the Bank of England has hinted the current 0.5% interest rate will rise soon, stock market volatility and concerns about China’s economy may mean interest rates will remain unchanged well into 2016 according to city experts.

Homeowners look for fixed rate mortgages

Paul Smee, director general of the CML said there has been a notable increase in remortgage activity from homeowners reflecting a desire to lock into a cheap mortgage deal before rates rise.

Borrowers have a wide choice of fixed rate deal to choose in the market from two, three, five and even ten year mortgages. Two year fixed rate deals are popular and West Bromwich offer 1.19% interest with a £999 fee for those with a 40% deposit.

These low rates are making mortgages more affordable to homeowners reducing the cost of borrowing when a remortgage buyer switches to a lower preferential rate.

For those with a smaller 10% deposit HSBC offer 2.38% interest with a £999 arrangement fee and for a longer term of five years they offer 2.88% with a higher £1,499 fee.

For home movers trading up to a larger property, you can avoid your lenders expensive variable rate by switch to a new mortgage deal and make your new purchase more affordable.

With a ten year fixed rate mortgage Nationwide offer a 3.14% interest rate for an arrangement fee of £999 if you have a 40% deposit. If you have a smaller deposit of 10% the offer is 4.04% with the same £999 fee.

Fixed rate mortgages are also more popular with first time buyers, home movers and buy-to-let landlords due to the general belief that interest rates will rise.

For older equity release mortgage buyers, fixed rates can typically be secure from interest rates of 5.8% upwards without any evidence of earnings which is important for borrowers with only pension income.

What factors increase mortgage rates

The Bank of England has kept interest rates at the current record low of 0.5% since March 2009, over six years.

For mortgages loans, lenders can use saver deposits or borrow money from banks and the money markets. The cost of borrowing for lenders feeds through to the deals they can offer and for fixed rates mortgages they use interest rate swaps.

The cost of swaps is influenced by the market expectation of interest rates and inflation in the future and comments by the Bank of England has pushed rates higher in the past.

Currently the market does not expect a rise in the short term and has ignored comments from the Bank about an interest rate rise, resulting in even lower fixed rates.

In contrast tracker mortgages use the Libor rate and they will rise by the same percentage if bank rates are increased in the future. For variable rates the lender has discretion to change the rate although they usually follow changes in the bank rate.

The best action is to review your existing mortgage once your deal comes to an end to avoid any penalties as you are likely to find another cheaper deal, either a fixed rate, discount or tracker rate mortgage.

What are your next steps?

Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.

For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to repay an interest only mortgage or even buy a more expensive home.

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

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