BORROWERS who want to fix their mortgage are being urged to act quickly after two of the country’s biggest lenders pulled their deals and economists warned a Bank rate of 6% looks more likely.

Halifax last week hiked the rate on its top two-year fix from 5.49% to 5.79%, while Abbey recently increased its best deal from 6.19% to 6.24%.

Other lenders have followed, with Portman upping its two-year fix from 5.29% to 5.69% and Northern Rock hiking its deal from 5.49% to 5.69%.

Louise Cuming of Moneysupermarket, a comparison site, said: “Borrowers needing the stability of a fixed rate product should reserve their next deal now if their mortgage term is coming to an end. Fixed rates appear to be going up – and fast.”

BACKGROUND

• Fears of retail bloodbath as interest rates hit home

• Fall in mortgage applications as interest rate rises bite

• Inter-bank rates climb to nine-year high

• Emergency injection

• The 3Rs: reading, writing and interest rates

Fight back against rising interest rates

Mark Bridge suggests some easy ways to boost income and offset climbing mortgage repayments

• How landlords can boost their profit

• Make £1m tax-free in just 10 years

Related Internet Links

• The Times Shadow MPC

• The Bank of England MPC

Fixed rates have been on the up because the City expects the Bank of England to raise rates by another quarter point to 5.75% this summer – possibly at this week’s meeting – and some commentators think they could even hit 6% before the end of the year.

The resilience of the housing market is adding to fears of further rises. Growth bounced back in June, with prices increasing by 1.1%, according to Nationwide – the fastest monthly rise so far this year and more than twice the rate last year.

Annual house price inflation jumped to 11.1%, its highest level since January 2005.

Fionnuala Earley, chief economist at Nationwide, said: “The bounce in house price growth will add to the risks being counted up at the Bank of England. While we expected interest rates to increase to 5.75% in August, this news, together with the revelation that rates remained on hold by only the narrowest of margins in June, will set the stage for that rate rise to move forward to July.”

Interest rates have already risen four times in the past 10 months, from 4.5% to 5.5%, adding £166 a month to a £200,000 interest-only mortgage payment.

As a result of the hikes more than 800,000 borrowers face a £1 billion “payment shock” in the coming months when fixed rates they took out two years ago end.

In summer 2005, the best fix was at 4.15% but today borrowers will be hard pressed to find fixed rate deals below 5%.

For those looking to reserve rates now there are a number of good deals available. Cheshire offers a two-year fixed rate at 5.49% with a £899 fee and free valuation.

Stroud & Swindon offers a two-year fixed rate at 5.54% with a £899 fee with free valuation and legal work for remortgages but you require a 10% deposit.

If you are looking for longer-term stability, Britannia offers a five-year fixed rate at 5.69% with a 5% deposit, and the deal carries a £499 fee.

Borrowers should note that they can reserve a mortgage at the current rate for up to six months.

David Hollingworth of London & Country, a mortgage broker, said: “Borrowers should go with what makes them feel safest but I believe that for the majority of people that will be a fixed rate.”

However, a discount may be better value. Nationwide has a two-year deal at 4.84%. Even if rates went up by 0.5 points you would still pay 5.34% – less than the best fix.