The UKís 11.2million mortgage holders will see a sharp rise in mortgage rates, as the full effects of the eurozone crisis take hold.
The warning from the Bank of England will mean that homeowners may face interest rate hikes, and have thousands of pounds a year added to their mortgage repayments.
Experts argue that the news could push some homeowners ëover the edgeí, as many are already struggling to stay afloat amid the recession.
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ìIn the absence of falls in funding costs, it suggests that some further increase in mortgage rates is likely as banks seek to restore their margins,î the Bankís report warned.
Leading mortgage lenders, including Halifax, the Co-op and Yorkshire Bank, have already imposed increases on their standard variable rate (SVR) loans.
According to the Council of Mortgage Lenders, up to eight million homeowners are thought to be on a variable rate, which also includes those on tracker deals.
Experts have urged those on SVR deals to make the switch to fixed rate deals, to stop their mortgage repayments spinning out of control.
However, fixed rates are also set to increase. ING Direct has announced it will increase its two-year fixed from 3.29% to 3.4%. Last week Yorkshire Building Societyís two-year fixed rate loan climbed up from 3.24% to 3.54%.
In contrast, Nationwide has announced that it is reducing its two and five year fixed rates by 0.10%. The two year fixed rate is available at 3.39%, while the NewBuy five year fixed rate is available at 5.99%.
The news comes shortly after the Council of Mortgage Lenders released figures that showed that 51,200 new mortgage loans were granted to home buyers this March. This is an increase of 44% from February and up by 31% in a year on year comparison.
You can compare mortgages with Money Expert.