Mortgage rates tipped to hit 4pc this year

MILLIONS of homeowners will be forced to pay more for their mortgages with the best deals forecast to charge 4pc by the end of the year.

Average rates on two-year fixed-rate mortgages sold by the 10 biggest lenders have risen from 1.34pc to 2.71pc in the past six months. If they continue to rise at the same pace they will surpass 4pc by the end of December, according to analysis by broker L&C Mortgages.

Some 1.3million borrowers will be affected as their fixed deals expire this year – adding thousands in interest to their repayment plans.

A borrower with a £150,000 mortgage would have paid monthly instalments of £589 had they locked into the average two-year rate in January. Taking out the same mortgage at 4pc would cost £792 – meaning they pay nearly £5,000 more over the two years.

The 10 biggest lenders have already trebled their charges since last October.

Brokers warned that this week’s interest rate rise by the Bank of England would be a “hammer blow” to borrowers.

The Bank Rate rose by 0.25 percentage points to 1.25pc this week and banks and building societies wasted no time in passing on the higher costs to homeowners.

Andrew Montlake, of mortgage broker Coreco, said: “This latest rise will no doubt lead to mortgage lenders quickly pulling their current deals and re-pricing them higher.”