Hundreds of thousands of borrowers coming to the end of cheap two-year mortgages were last week urged to act fast to secure another top deal because rates could be heading up. The Bank of England kept its main interest rate on hold at 5.75% on Thursday, but discount and tracker loans could get more expensive for new customers because of the credit crisis in financial markets.

This is bad news for an estimated 800,000 people who took out rock-bottom fixed rates in autumn and winter 2005 and are now coming to the end of their schemes. They were already facing a payment shock because rates are much higher than two years ago, and now the credit crunch threatens to make some new deals even more expensive.

This time in 2005, you could have fixed for two years at 4.29%. Now, the cheapest remortgage deal is a tracker from Halifax at 5.39%. Someone with a £150,000 interest-only mortgage would see repayments leap £137.50 a month, or £1,650 a year, on the tracker – and it is unlikely such cheap variable rates will be about for long.

Lenders fund their variable rates by borrowing from each other in the money markets, where rates have surged in recent weeks even though the Bank’s rate has remained on hold. This is because lenders are nervous following America’s sub-prime mortgage meltdown, where borrowers lured by dirt-cheap “teaser” rates have subsequently defaulted on their loans.

The three-month Libor rate, the main rate at which British banks lend to each other, leapt to 6.87% last week – its highest level for nine years and more than 1 percentage point above Bank rate. This is beginning to feed through to the deals offered to new customers.

Cheshire building society raised the rate on its two-year discount from 5.49% to 5.64% last Thursday, while its three-year tracker has gone up from 5.65% to 5.75%. Intelligent Finance, meanwhile, has hiked the rate on one of its two-year trackers by 0.2 points to 6.3%, although its parent, Halifax Bank of Scotland, said this was not just due to wholesale rates. These rises affect only new borrowers; if you already have a tracker rate, it should only go up in line with Bank rate.

Industry experts said more lenders were likely to hike their variable deals. Nigel Ter-rington at Paragon, a buy-to-let lender, said: “The current problems in the wholesale markets have been a wake-up call. Mortgage rates generally will get higher.”

Many brokers therefore recommend you snap up a good tracker or discount while you still can. Once you have locked in, you should not be affected by the market turbulence because your loan will be linked to Bank rate, not the Libor rate – and your mortgage could even get cheaper.

Before the financial crisis, many economists expected Bank rate to go up by another quarter point to 6% before the end of the year. Now, however, four out of five analysts think rates have peaked at 5.75%, according to Reuters, the data firm. Richard Dingwall-Smith, chief economist at Scottish Widows Investment Partnership, said: “We see scope for interest rates to be trimmed back to around 5.25% to 5.5% by the end of 2008.”

Advisers usually recommend you apply for a new mortgage at least two months before your existing term ends. However, some mortgage offers are valid for six months. So, even if your current deal has a few more months to run, it could still be worth acting now to secure a good discount or tracker. If you feel more comfortable with a fixed rate, Skipton and Britannia have the best two-year deals at 5.49%. Skipton’s scheme is best for remortgages as it includes free valuation and legal work.

There is not the same urgency to snap upa fix. They are priced according to swap rates, not Libor, which reflect the City’s view of future interest rates. As the chances of further rises have receded, swap rates have fallen and fixes could get cheaper.

REMORTGAGING

Brokers recommend you snap up a good tracker or discount while you still can. Once you have locked in, your loan should be linked to Bank rate, which many economists now think could be cut next year.

Newcastle has a two-year discount at 5.15% if you are moving, while Halifax has the best remortgage deal at 5.39% through brokers.

EXISTING LOANS

If you have already taken out a tracker, your payments should rise only if the Bank puts up rates again – but the chance of this now looks increasingly remote.

If you have a loan linked to your lender’s standard variable rate, though, it could go up even if Bank rate doesn’t move, but this is unlikely.

LANDLORDS

Thousands of buy-to-let borrowers with mortgages linked to wholesale rates, known as Libor, are about to feel real pain.

Mortgage Trust, which is part of Paragon, has just hiked its Libor loan rate by 0.92 points, on top of the increases already seen over the past 12 months following rises in Bank rate.