Whether or not you believe mortgage interest rates are going to rise or fall will determine your choice of your new mortgage or remortgage.

Inflation generally has an impact upon interest rates; if inflation rises too high then one way to reduce it is to increase the Bank of England base rate.

The government target set to the Bank of England is to keep inflation at a rate of 2 percent.

According to figures released this week, in December the Consumer Price Index (CPI) leapt to 2.9 percent from the 1.9 percent reported in November. This has been attributed to a number of factors including rising prices of crude oil, fewer discounts at retail outlets and the economic recovery. However, now VAT has returned to 17.5% this month there is a chance that inflation could rise to over 3 percent.

When inflation rises over the 2 percent Government target, Mervyn King the Governor of the Bank of England, will have to write to the Chancellor of the Exchequer explaining why. Chances are, this means the Bank of England is likely to raise the base interest rate.

This is likely to be a real wake up call for borrowers who are quietly sitting on lower interest rates and hoping they will remain low for the foreseeable short term at least. Many people are on variable rate mortgages and so will feel any rise in the Bank of England base rate straight away.

Many homeowners have remained on variable rate mortgages either because they don’t want to give up the discount by remortgaging to a fixed rate deal or because they cannot remortgage – like the position many of the Northern Rock (Asset Management) customers may find themselves in.

Should interest rates rise, mortgage advisors everywhere will be seeing customers, old and new, looking for the best and cheapest mortgage deal they can find.

Given this latest news, we may also see the prices of fixed rate mortgage deals increase over the next few weeks.

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