Homeowners who want a fixed rate mortgage were today urged to move fast as lenders began pulling their best deals, following rising funding costs.

Nearly a dozen lenders have either withdrawn or increased some of their fixed rate mortgages during the past week, including First Direct, which has pulled its best buy two and five-year fixed rate products (see The Remortgage Guide).

Other lenders that have hiked at least some of their mortgage rates include Lloyds TSB, Halifax, Northern Rock, Skipton Building Society and the Co-operative Bank, with some groups increasing rates by up to 0.7 of a percentage point.

The latest round of re-pricing has been sparked by a steep increase in swap rates, upon which fixed rate deals are partially based.

Since the beginning of the year two-year swap rates have risen from 1.53% to 1.79%, while five-year ones have jumped from 2.66% to 2.93%, amid speculation the Bank of England's Monetary Policy Committee will raise interest rates sooner than previously expected because of high inflation.

The Confederation of British Industry (CBI) predicted last month high inflation will force the Bank of England to raise interest rates gradually in the spring from its 0.5% historic low. Others suggest the rise may come later.

The latest inflation figures yesterday showed the Consumer Prices Index rose by more than expected during December, increasing to 3.7%, up from 3.3% in November, and well above the Bank's 2% target.

David Hollingworth, of mortgage broker London & Country, says: "We saw lenders pulling their fixed rate deals last week and that trend has continued into this week.

"Swap rates have been increasing over the past couple of weeks, putting upward pressure on the prices of fixed rate mortgages.

"Once you get a few lenders re-pricing, that puts pressure on other lenders to respond. There are very few five-year fixed rate deals still available for under 4%.

"No-one knows what will happen to rates in future but the trend is upwards at present."

He suggests people who want the security a fixed rate deal should consider remortgaging now in case they rise further.

Although many economists now expect interest rates to start rising sooner than previously expected because of inflationary pressures, they are still set to remain low by historic standards.

It is also important to factor in any arrangement fees, which can be as high as £1,500, when considering which mortgage to take out, while borrowers should also remember that fixed rate mortgages can come with hefty early redemption fees if they want to get out of the deal early.

Hollingworth points out some deals allow you to book a rate but not draw the money for a few months.

If rates jump and you move to a pre-booked fix you've not lost out.

But if you dump the fix because you want to continue on a variable rate or you find a better fix you will lose any fee – that can hit £200 – payable on application. So view this charge as an insurance policy.

Further reading/Key links

Mortgage cost-cutting guides: The Remortgage Guide, First-time Mortgage Guide, Cheap Mortgage Finding, Ditch My Fix?
Get help: Mortgage Arrears, Redundancy Help