MORTGAGE brokers expect demand for fixed-rate mortgages to surge, as higher-than-expected inflation figures make an interest rate rise more likely.

Figures released this morning from the Office for National Statistics revealed that consumer price inflation rose to 3.1 per cent in March – it’s highest level for 10 years – shortening the odds on a further rate rise when the Bank of England’s Monetary Policy Committee meets next month.

If interest rates do go up, it will be the fourth increase since last August taking Bank rate from 5.25 per cent to 5.5 per cent. Those with variable rate mortgages will really feel the pain as a typical borrower with a £150,000 interest only loan will be paying a £125 a month or £1,500 a year more than they were this time last year.

David Hollingworth at L&C Mortgages, a broker, said: “The impact of the earlier rate rises is beginning to bite and the expectation of further increases ahead is likely to result in a ‘safety first’ approach from many of those looking for a mortgage. The great news is that borrowers do not have to pay much of a premium for the security of a fixed rate.”

BM Solutions has the lowest two-year tracker at 4.74 per cent. The fee is £1,499 and the deal is available for loans up to 90 per cent. However, you can fix for two-years at 4.89 per cent with Bradford & Bingley (B&B). This product has a £1,299 arrangement fee and the minimum deposit is 5 per cent.

However, anyone looking to lock into a fixed rate is urged to act quickly. Melanie Bien at Savills Private Finance, a broker, said: “Anyone in need of the certainty of a fixed rate should act as soon as possible as we expect lenders to start increasing their fixed rates. Northern Rock has already put its fixed rate sup by 0.1 percentage points and we think other lenders will follow suit.”

The B&B deal offers the best two-year value for those moving home and borrowing more than £150,000. However, because the fee is high, anyone looking to borrow less than that would be better off with a deal from Alliance & Leicester, which has a rate of 4.99 per cent and a £999 arrangement fee.

If you are remortgaging, Halifax and Abbey offer better options. They both have a two-year deals that are fixed at 5.14 per cent. Both products are available for loans up to 90 per cent and the arrangement fees are £999. However, borrowers receive a free valuation and free legal work.

Longer-term fixed rates are also looking good value and there is little price difference between them and short-term loans. If you would prefer to secure your mortgage payments for more than two years, Britannia has the best five year fix at 5.24 per cent. The fee on this deal is £499 and it is available for loans up to 95 per cent. Alternatively, you can lock in for 10 years at 5.28 per cent. This deal is available from Woolwich for those with a deposit of 20 per cent or more. The fee is £595, although anyone remortgaging receives a free valuation and free legal work.

However, while Bank rate is expected to go up in the short term, many economists believe we are near the peak of the current tightening cycle and that the Bank of England will start reducing interest rates again next year. If you agree with this view, you may be prepared to swallow higher mortgage repayments in the short term and go for a variable rate deal so that you benefit from reduced payments when rates start to fall.