Homeowners who are already struggling to pay their mortgage bills, such as first-time buyers and young families, could be pushed over the edge into severe debt by the interest rate rise.

With economists predicting another increase as soon as February, there are growing fears that more homeowners could even be in danger of losing their homes. Sue Edwards, of Citizens Advice, said: “We are already seeing a rapidly growing number of people falling behind with mortgage payments and in some cases threatened with repossession, and we know a lot of people are taking on mortgages that stretch them to the absolute limit.”

The number of repossessions has almost doubled in the past year, while the number of mortgages in arrears by three to six months has crept up from about 54,000 to 63,000.

First-time buyers are most at risk. In the past few months mortgage lenders have increased the amount that they will lend to some first-time buyers to up to seven times their income.

House prices have risen significantly over the past five years, taking the costs of home ownership with them. The average mortgage balance has almost doubled since 2001 — when the base rate was last at 5 per cent — from £52,578 to £90,177, according to the Council of Mortgage Lenders (CML). Average monthly repayments have risen from £307.37 to £527.17 over the period. If interest rates go up as high as 5.5 per cent next year, a borrower with a typical loan of £90,177 loan would have to find a further £300 a year.

Borrowers with tracker loans will see their repayments rise by 0.25 percentage points automatically. But anyone paying their lender’s Standard Variable Rate (SVR) will have to wait to find out how they will be affected. Lenders can change their variable rates by more than the base-rate increase if they wish.

Even borrowers with fixed rates, which account for 60 per cent of the mortgage market, will not be spared. Anyone coming to the end of a fixed rate will be forced to pay a much higher premium for the same kind of deal now. Average fixed rates have risen by more than one percentage point in the past three years, from 4.28 per cent in November 2003 to a present average rate of 5.55 per cent.

Only a few small mortgage lenders increased their SVRs by 0.25 points immediately yesterday, with the majority, including Halifax, Abbey and Nationwide, expected to announce changes early next week. Most savings rates are also yet to increase.

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