The typical mortgage rate will rise above three per cent by the end of 2019, according to Capital Economics.
An increase will raise repayments for homeowners who have not fixed on to long-term deals and also hit house price growth amid lower levels of lending, the economy experts forecast.
The rise in mortgage rates will come off the back of the Bank of England raising the base rate to 1.75 per cent by 2020, according to Ed Stansfield, Chief Economist, at Capital Economics.
It’s widely thought core interest rates could rise in November for the first time in a decade, after the Bank’s Monetary Policy Committee (MPC) warned of a rise in the coming months.
A hike will likely raise the cost of borrowing through mortgages as well as credit cards and loans.
But rates are set to rise much faster than many families and businesses expect, Mr Stansfield warned.
He said: “We now expect the first rise in Bank Rate to come at November’s meeting.
“We have then pencilled in three hikes next year, and a further two for 2019.
“Thus, by the end of 2019 we expect Bank Rate to sit at 1.75 per cent.
“Accordingly, it seems almost certain that mortgage interest rates are now approaching a turning point.”
The average mortgage rate will hit 3.2 per cent by the end of 2019 from its current level of 1.95 per cent, according to Mr Stansfield.
He said the increase will hit house price growth but not send values crashing.
In a research note Mr Stansfield added: “We believe that employment levels will stay high and the growth outlook will improve.
“Add in the fact that, in recent times, new loans have been subject to affordability tests, and we do not think that such rate rises will drive up mortgage arrears or forced sales which could trigger house price falls.”