HUNDREDS of thousands of homeowners could pay more for their mortgages next year even though the Bank of England is expected to cut interest rates to at least 5.25%.

Around 1.4m will come to the end of cheap fixed rates over the next 12 months. While falling rates would normally be good news for borrowers, analysts warn many will see a leap in repayments as the credit crunch fallout continues.

The Bank cut rates by a quarter point to 5.5% earlier this month and many economists predict another 0.25 percentage point reduction either in January or February, with at least one more decrease later on in the year.

Some believe rates will fall even lower: investment banks HSBC Securities and Credit Suisse First Boston forecast Bank rate at 4.75% by the end of 2008, while Capital Economics, a consultancy, thinks it will be at 4.5% this time next year.

Despite this, some mortgage providers plan to raise the cost of loans for new borrowers in the new year as they are struggling to raise funds because of the crisis that has hit financial markets.

The three-month Libor, the rate at which banks lend to one another, is usually similar to Bank rate, but for the past few months it has been running at more than 6%.

Cheltenham & Gloucester is increasing the rate on its tracker deals for new customers on Thursday. Its two-year deal with a £1,995 fee is going up by 0.15 points from 0.03% above Bank rate, to 0.18 points above. This takes the pay rate from 5.53% to 5.68%. Analysts expect more lenders to follow its lead in the next few months.

It is still possible to get a good rate, though, and borrowers are being urged to move quickly to snap up the best deals. First Direct has a two-year fix at 4.99%, with a £1,498 fee. This is available for loans up to 80% of the property’s value.

The next-best deal is from Skipton building society at 5.49%. It is available up to 95% and has a £1,599 fee. Both deals offer free valuations and legal work for remortgages.

If you would prefer a variable-rate mortgage, a tracker is a better option than a discount. Once you are locked in to a tracker you are guaranteed to benefit fully from any rate cuts – C&G’s rate hike only affects new borrowers.

Discounts are linked to the lender’s standard variable rate, and not all lenders pass on rate cuts in full: Northern Rock is cutting its SVR by just 0.15 percentage points following the latest Bank of England cut.

Cooperative Bank has the best two-year tracker for remortgages at 5.49%. The Bank rate needs to fall by more than 0.5% to make this a cheaper option than First Direct’s fix.

The fee is £999 and it is available for loans up to 95% of the property’s value.