Homeowners who are not on fixed-rate deals were warned last week that they could soon face higher monthly payments, writes Jessica Bown.

Philip Williamson, chief executive of Nationwide building society, one of Britain’s biggest lenders, said that life could soon get even more difficult for homeowners if, as expected, the next move in rates is up.

Williamson said: “The money markets clearly expect the next rate move to be up. My gut feeling is that they are right and that the change could come later this summer.”

Expectations of an interest-rate hike were strengthened last week when the minutes of the latest meeting of the Bank of England’s monetary policy committee revealed that one member voted for a 0.25 percentage-point rise. Another voted for a cut, with the rest voting for the base rate to remain on hold.

That meant the base rate stayed at 4.5% in May, although traders now think it could go to 4.75% as early as next month. The Bank of England’s inflation report also forecast that inflation would hit its two-year target of 2% only if interest rates rise at least once.

Fixed rates have already risen to reflect the fact that the money markets, where lenders fund their deals, expect rates to rise. Halifax, for example, has increased its two-year fix from 4.39% to 4.99%.

Many tracker deals, which follow the base rate, are now cheaper than fixed rates as a result. At present, the best two-year fixed rate is from Mansfield at 4.5% but you need a 25% deposit.

The best tracker, from Portman, charges 4.19% for two years.

Abbey last week launched a new two-year tracker that charges base rate minus 0.12% — giving a current pay rate of 4.38%. The bank’s chief economist, Barry Naisbitt, said: “Even if the Bank increased base rate a couple of times in the next two years, a tracker is still likely to work out cheaper because any hikes are likely to be modest.”

However, David Hollingworth of L&C Mortgages said: “A fixed rate is always a more sensible option for people who are stretching themselves financially.”

Either way, the latest monthly figures from the Council of Mortgage Lenders indicate uncertainty over interest rates has dampened demand for mortgages. Overall mortgage lending fell 12% to £25 billion last month, although it is still up 16% on this time last year.

Michael Coogan, CML director-general, said: “The level of new mortgage approvals has stabilised in recent months and we do not expect the underlying level of lending to rise.’’