Not that inflation is worrying the Bank of England as all 9 members of their committee that sets interest rates decided unanimously to keep rates on hold last month. This represents a small sea-change as at one stage at least 3 of the members were voting for an immediate rise, (although the main protagonist calling for rises has now left the committee of course).

The evidence of slowing growth and the issues in the financial markets, coupled with reports that suggest home finances fell for 40% of households in August, have been enough to put back rate rises to next year, if not beyond.

The biggest discussion point now is whether Quantitative Easing, the much heralded QE3, will be seen at some stage soon, with even some speculating that Bank Base Rate will be cut even further.

Talk of “a lost decade” and a “Japanese era” are being whispered with growing concern as has the much dreaded term “Stagflation”. The Wikipedia definition is that this “is a situation in which the inflation rate is high and the economic growth rate is low. It raises a dilemma for economic policy since actions designed to lower inflation may worsen economic growth and vice versa.”

The issues that such a period can cause are often seen as more difficult than dealing with straightforward inflation. However, whether or not we do indeed fall into a new recession, or whether this is just actually a continuation of the first one, it is what it is.

All this means that at present mortgage rates continue to be ridiculously low and the financial cost of purchasing a property, especially compared to renting, remains more affordable than it has been for a long time, (as long as you can raise that much needed deposit of course).

On the back of these low rates, especially the longer-term ones, we are seeing a steady increase in remortgaging, after all, when you can fix for 4 years at 2.99% or for 5 years at 3.39% for example, the benefits in years 3, 4 and 5 could potentially be massive.

After the almost unprecedented 4 way split revealed in last month’s meeting minutes, it really looks like the Governor Mervyn King has a fight on his hands to keep any sense of unity and these public splits do the Bank no particular favours.

At polar opposites you have Andrew Sentance, a long time proponent of an early rise and Andrew Posen, who still wants to print more money. Of the other two members voting for a rise we now have none other than the Bank’s Chief Economist, Spencer Dale, the person who actually puts the inflation report together.

Although Mr King has recently come out fighting with some strong speeches he is clearly a man under pressure and all bets are pretty much now off for a rate rise in May at the latest.

There has also been some strong political talk about supporting business and enterprise perhaps designed to take some pressure off the calls for an immediate rate rise.

Whether or not the MPC finally elects to increase rates lenders have already priced in an expected change. In fact maybe they have overpriced slightly, as a few lenders have actually reduced their rates again, albeit by a much smaller margin than they initially increased.

The good news is that lending criteria has started to ease slightly, as lenders become more comfortable to take slightly more risk. Whilst this will not change overnight, the consequence of this should be that mortgage finance starts to become slightly easier again in the coming months.

Lenders still seem to playing a week-to-week game, with rates coming and going at almost alarming speed, and with Legal & General reporting that 90% of mortgage holders are on some form of variable rate, which is an astonishing statistic, there are many who no doubt should be looking for the sanctuary of a fixed right now.

Fixes at 2.79%, (4.20% APR) for 2 years, 3.95% (4.10% APR) for 3 years and 4.49% (4.70% APR) will no doubt not be around for long. It really is now a matter of time.

After all, nothing is better than panicking people into action than a short, sharp shock.

The truth is that it might not be quite that simple and could provide as many problems as it solves. For many consumers, a sudden half point rise could prove to be the tipping point, especially if it is followed by another one or two increases later on in the year as predicted.

Leaving aside the fact that I believe rates should rise slowly and steadily to help manoeuvre us into a better position to stave off the longer term inflation threats, it is true that a rate rise in May will prompt a small flurry of activity in the remortgage world.

Of course we will all be grateful for this extra business, but it may not translate into the massive increase in actual business that many believe. Firstly, some lenders are worried. They are concerned that the demand they will face from clients to move onto a fixed rate will cause them supply issues as they simply have not got as much money to lend as before. If they are deluged with remortgage business suddenly, something has to give.

So we could see higher than expected rate rises from lenders, which may put off many looking to fix in any case, or a further tightening of criteria to control business levels. Even now it is the supply of mortgages that is constraining the sector as many of us working on the front line know, not quite the demand issue that the CML often alludes to.

The biggest issues a rate rise brings will be faced by the “mortgage prisoners”. Those on high LTV’s or whose job situation has changed and are unable to remortgage onto a fixed rate, (hello!). These are most at risk and a 1% change over the next few months could see repossessions rise, a situation surely not good for anyone. The rates that are on offer for these customers are so high that the phrase “payment shock” becomes “payment panic”.

For me, rather simplistic as I am, lenders can do more to help this situation by offering their existing clients in such a position a more realistic fixed rate to help stave off this threat, something starting with a 4 rather than a 6 or even 7. I am sure there must be some room to manoeuvre here rather than letting customers get further into trouble as rates rise.

The point here, and it is not about being negative, is that if you are sitting there thinking a rate rise will be the answer to all your issues, then you are missing the point. There are many other things you could be doing than waiting for things that cannot be controlled.

As a wise industry sage recently told me, too many people sit there and say, “once this happens or that is out of the way things will get better”. But there is always another something that needs to happen before things improve, until you realise, as Alfred D Souza says “these obstacles were my life.”

Making the best of things now is what really matters, and there are still many opportunities as we will no doubt see in the coming months.

The question we have been asked most lately is whether to fix or not and I have for a long time now stated that I believe more people should be seeking the sanctuary of fixed rates than actually have done.

Evening Standard at the centre of the media storm

So in a rational and calm way, whilst I believe rates will rise sooner than many they will not go to 5% by the end of the year, here are my views together with some examples of the fixed rates available at present.

I cannot believe that the MPC will be able to “ignore” inflation, which is the only job they are actually detailed to do, for too much longer. Unless things really do get much worse due to deepening Euro issues or some other unforeseen circumstance, just for cyclical reasons I believe as we get closer to 2012 and certainly by mid 2012 and 2013 we will be into a period of sustainable growth.

I suspect that because of the current economic environment rates will creep up rather than shoot up, with the first rise coming by May and ending the year 1% higher than it is now. Remember, the Monetary Policy Committee can always reduce rates again if they need to.

As the markets work ahead of any actual changes it is likely that rates will have to begin rising soon to peg inflation and we will head towards a more “normal” Bank Base of between 4% and 6% over the next 3 years or so. If things overshoot and inflation proves to be even stronger, bolstered by the unknown effects of QE, as an example, then the downside could be even higher interest rates.

We have seen both SWAP rates and therefore lenders fixed rates steadily edge up over the past couple of months and I think this may continue unless something changes in the economic outlook, probably for the worse, that makes everyone believe the recovery really is not coming yet. The best 5 year rate was 3.69% a couple of months ago as an example, now that same lender offers 4.09%.

Those lenders that have not yet increased their fixed rates look set to do so soon. Increased competition from lenders is still muted so unlikely to have an effect of driving down fixes again. There could always be one or two who break the mould to gain market share but they have no need to go too low in this market.

In general the closer we get to a rate rise the higher fixed rates tend to creep, so waiting until an actual rise takes place may be too late for the best products.

Taking a 2 year product, unless you need the flexibility to repay a vast chunk in 2 years time, means that you could be looking to remortgage again relatively quickly in a higher, rising interest rate environment where a 5% or even 6% fix may look competitive!

In other words the risk of losing on a tracker over the next 5 years, as well as the potential downside cost (as there is an unlimited loss), seems to be much greater than the risk of taking a fixed and losing out if rates stay low (as there is a smaller defined loss). Especially, if the difference is only 1% to 2%.

I can only say what I would do myself, and if I could take 5 years fixed at around 4% now I would bite your hand off for it, sit back and relax, overpaying when I could.

Those who managed to get on the 3.69% are likely to be feeling pretty smug!

In terms of products the following are a guide to what is currently available :-

2 year fixed – 2.65% fixed until 02/03/2013, (4.24% APR)

3 year fixed – 3.29% fixed until 28/02/2014, (5.30% APR)

5 year fixed – 3.95% fixed until 30/04/2016, (4.10% APR)

Alternatively Coventry have an interesting tracker rate product starting at 2.25%, (4.30% APR) which is capped at 3.49% until 31/03/2013.

However, this week sees the release of a major report involving the “stress-testing” on a range of European Banks to determine their health and, perhaps more importantly, whether they are in a position to cope if anything goes seriously wrong again. These “detailed” tests have been undertaken on 91 banks, including names such as Deutsche Bank and Commerzbank in Germany, HSBC and Barclays in the UK, as well as Societe Generale and BNP Paribas in France.

The worry is that if this is negative we could slip into a second credit crunch. The other worry, as some news has been leaking that certain lenders have walked through these tests, is that they have become a bit of a shambles and cannot be trusted. In other words, if no one believes the results, is this just as bad as a negative result?

Under this shadow, the Bank of England are trying to deal with some contradicting factors; on the one hand the recovery looks like it is petering out, the budgetary cuts are due to bite in the near future and they are even considering boosting their Quantitative Easing policy, on the other hand inflation is still proving sticky and one Monetary Policy Committee member, Andrew Sentance, voted for the second month running for an early hike in interest rates.

Economist Ray Barrell, of the National Institute of Economic and Social Research, told the Times that putting QE back onto the table indicated the MPC were worried about the results of this Stress Test report. He said, “we are sitting on the edge of a volcano and we won’t know until Friday whether it will erupt or not”.

It is sobering stuff, but without trying to be too pessimistic it does seem as if we may have already seen the best part of the year in the mortgage market.

However, too many people like to dwell on the negative, bad news sells don’t you know, and whilst we are all under no illusions that we are still not out of this crises, things may not actually be that bad and will begin to even out.

The reality is probably that the Stress Tests will not actually be too worrying and will have been done to ensure that most banks, but by no means all, pass through safely. So maybe a little rigged then, as my learned colleague Rob Gill says, “I can’t believe even the EU would be so daft as to order a series of tests which could spark a second, European orientated banking crises, cost billions upon billions or Euros to sort out and potentially tear apart the Euro zone.”

What is more, there is of course a positive side to falling house prices and more properties on the market meaning that more people may be tempted back to the market in due course. Mortgage rates are still low, lenders still ultimately need to lend and people still need to move and desire to own their own home.

What is more, people still have a mistrust of banks and there is an increasing demand for independent advice that is unlikely to diminish.

As with everything, sentiment is of paramount importance and if you choose to just concentrate on the negative then do not be surprised when negative things happen. It is much better to be aware of the issues; it is dangerous to be naive, but to concentrate on the positives.

Last word to Rob for another very valid point, “The big risk at the moment is the US talking themselves into a double dip, and they really are talking their way into it rather than there being any underlying causes.”

As individuals, as an industry, as an economy and as a country we should be careful not to do the same.

It is of course no surprise that in recent times the popularity of the fixed rate product has waned as people come to terms with the financial environment. The “as cheap as possible please” line has been even more popular than usual as not only have many clients expected that Bank Base will stay low, but also that low tracker rates now are a shot in the arm to many, helping to keep the wolf from the door.

It is however, easy to become blasé about this status quo and get sucked into the cheapest is best vacuum. The reality is rates are going to rise and margins on tracker products are higher than ever. The conversation with those clients in these times perhaps should not just be around can you afford a 1% rise, rather over the next few years, can you afford a 2%, 3% or even more rise?

I suspect as we get closer to the time that it looks like rates will finally rise again we will see a growth in the number of fixed rate products being taken. We are at least starting to see more enquiries from those who see a fixed rate as their next logical move.

Of course it all depends on your interest rate point of view, but I do worry that actually more fixed rates should be being taken now, especially by those who have been enjoying a prolonged “holiday” on a lenders low variable rate.

The good news is that with some competition returning to the market fixed rate products are becoming more attractive, so the difference between a tracker and the security of a fixed is becoming more blurred. Once that first change in Bank Base occurs no doubt there will be a panic rush to the sanctuary of a fixed by many, but as ever, it all comes down to obtaining sensible advice.

It is not all about whether a tracker rate “beats” a fixed rate, it is about what is good for each individual client, and for many, even if they do end up paying a little more, the knowledge of security is priceless.

Whilst there are suggestions that this spike in inflation has been expected and is merely temporary, it is unlikely to drop off sharply if recovery does continue to grow and will undoubtedly put pressure on the Bank of England to seriously consider finally raising interest rates.

This is a real shot across the bows for borrowers, many of whom are quietly banking on a low interest rate environment in the short term. But this is a risky game to play.

More people than ever are on variable rate mortgages at present, either because they cannot remortgage or because they have decided not to given the discount on variable rates relative to fixed.

If rates do indeed rise to contain inflation then many borrowers will find themselves with significantly higher monthly payments and many borrowers who should be fixing may well be leaving it dangerously late.

The prices of fixed rate mortgages have fallen slightly due to an increase in competition in the mortgage market, although this trend could well reverse given today’s figures.