New figures show that rapidly increasing borrowers swap rates are pushing the cost of fixed rate mortgages through the roof but they may be the only option for borrowers who cannot afford the risk of a Bank of England interest rate hike to control inflation.

Figures released by the Bank of England suggest the average cost of fixed-rate mortgages are at an eight-year high, averaging 6.92%. But historically, fixed-rates are low; the Bank of England’s average fixed-rate mortgage spiked to around 7.55% in 1998, said Richard Morea from mortgage brokers London & Country.

Cheap fixed deals are still on the markets, but fees for borrowers with small deposits could be painful, said Morea, technical manager at L&C. Ray Boulger of John Charcol said volatility on the swap market is driving the rising cost of fixed-rate mortgages. Boulger said the cost of borrowing on the swap market jumped by 0.35% in just one day last week, fuelled by uncertainty about interest rates.

 The Bank of England could be forced to raise interest rates this year as part of its battle against inflation, which it aims to keep around 2% but has increased to at least 3%. According to Boulger, any move to raise interest rates this year would be mirrored by a climb down next year to give the economy breathing space.

Boulger further explained that the sharp rise in the cost of borrowing on the swap markets meant the price difference between fixed and tracker-rate deals had shrunk. Borrowers who could handle a short-term rise in interest rates might do well with a tracker-rate mortgage, says Boulger.