Homeowners have been told to expect a sharp rise in fixed-rate mortgage rates next week as lenders react to the turmoil in the financial markets. Mortgage experts have pointed to soaring interbank lending rates for projections of increases of up to a quarter-point expected from the big lenders.

A number of lenders, most recently Britannia, Northern Rock and Woolwich, have been cutting rates on fixed-rate mortgage deals. However, it is widely feared that the financial crisis will stifle growing confidence in the British mortgage market.

Three-month Libor – the rate that London banks charge to each other on borrowings – is up to 6 per cent, the highest since April. Swap rates, which dictate the cost of fixed-rate mortgages, have also risen by a third of a point in the past five days and stand at 5.7 per cent.

Yesterday sub-prime lenders became the first to raise rates since the turmoil at the start of the week. GE Money, the American-owned sub-prime lender, increased the cost of deals by up to 1.7 per cent and fees by£1,995.Experts predict that more rate rises will follow for all borrowers, not only those with sub-prime loans.

Rob Clifford, of mortgageforce, the nationwide broker, said: “Rates will certainly start to climb after the weekend. Once one lender raises rates, it is also likely that others will follow suit.”

Bank of Ireland and Accord, the specialist mortgage unit of the Yorkshire Building Society, pulled a number of remortgage deals on Wednesday and Thursday.

First National and iGroup, both part of GE Money, are two of the last remaining sub-prime lenders in the British market. First National customers borrowing less than 80 per cent of the value of their home will also see a huge jump in the completion fee, from £1,695 to £2,995. IGroup is increasing fees even further. Some borrowers with unfavourable credit scores will face nearly a trebling in fees, from £1,000 to £2,995.