The truth is that no one knows what is going to happen.
Unless tttt works in the product team that creates and defines new products (mortgages loans etc) then tttt won't know any better than us what will happen with mortgages, even working in that environment they can't be sure where the BOE base rate will go, what the LIBOR rate will be or what political or possibly regulatory pressure will come to bear to change the market.
You are on a good deal that is keeping close to the BOE base rate, and you can't switch to a more competitive (tracker) mortgage.
Then it is a question of fix or track.
We don't know when interest rates will rise, or to what point, but as it rises so will the cost of fixed rates.
At the moment the cost of applying for a new mortgage is high, but the application fees were this high 3 to 5 years ago and the lenders are now making at least a 2% profit on fixed rate mortgages compared to 0.1% a few years ago.
There is a lot of discontent at the banking industry as more and more people realise they are being exploited to get the banks back into their profit making ways.
So we don't know at what point there may be a crackdown on the profiteering by the banks, the politicians and regulators are much more interested in bonuses and the general election next year to focus on underlying causes, and worry more about the headlines.
Instead of applying for a new mortgage, why don't you
a) stick the £1K in a savings account so that it's ready when you decide to apply and earn interest.
b) pay the additional £1k off the mortgage and you'll be paying £25 a year less interest (based on the 2.5% BMR)
If you keep your repayments artificially high lets say at the same price as the fixed rate would be, you will pay off your mortgage early, and also you will not be as affected by a rise as you will not have reduced your payments and spent the money elsewhere.
You could save the overpayments to a savings account and over the year see how much money you have saved, and decide how best to spend it or repay on your mortgage.
I think the key is to work out at what point you want to switch to the peace of mind rate (fixed) so that you are covered in the even that your BMR rate would go above this.