The cost of taking out a new two-year fixed rate mortgage has risen to the highest level in more than eight years, according to figures from the Bank of England.

New data revealed that between May and June the cost of two-year fixed-rate mortgage, for borrowers with 25 per cent-worth of equity, rose by 37 basis points to 6.63 per cent. The last time rates hit these heights was in February 2000.

The figures have emerged as the Bank of England's Monetary Policy Committee (MPC) begins its two-day meeting to decide whether to change the UK interest rate, currently at 5 per cent.

The consensus is that the MPC will vote to keep the rate unchanged. However, it has emerged in recent weeks that, at its last rate-setting meeting, the MPC discussed raising borrowing costs as inflation soared to 3.3 per cent.

Commenting on today’s figures, George Buckley, chief UK economist at Deutsche Bank, said: "This is a very significant rise that will reduce demand both for new mortgage finance and remortgaging.

“There is bound to be a knock-on effect on house prices.”

Nationwide Building Society recently revealed figures showing that UK house pices had fallen for eight consecutive months in June, dipping by more than 7 per cent below last year's peak.

The cost of taking out a new two-year fixed rate mortgage has risen to the highest level in more than eight years, according to figures from the Bank of England.

New data revealed that between May and June the cost of two-year fixed-rate mortgage, for borrowers with 25 per cent-worth of equity, rose by 37 basis points to 6.63 per cent. The last time rates hit these heights was in February 2000, when interest rates were as high as 6 per cent. The interest rate is currently 5 per cent.

The average cost of a 5-year deal for a borrower with a 5 per cent deposit has risen from 6.98 per cent to 7.15 per cent, more expensive than many lenders' standard variable rates (SVRs).

The Bank of England has failed to publish average figures for 2-year fixed-rate deals for those who do not have a 25 per cent deposit for the second month in a row because such mortgages are now so scarce.

George Buckley, economist at Deutsche Bank, said: "The "repayment shock" for those attempting to refinance 2-year fixed mortgages is now huge." About 1.5 million borrowers will come to the end of mortgage deals this year.

The figures have emerged as the Bank of England's Monetary Policy Committee (MPC) begins its two-day meeting to decide whether to change the UK interest rate, currently at 5 per cent.

The consensus is that the MPC will vote to keep the rate unchanged. However, it has emerged in recent weeks that, at its last rate-setting meeting, the MPC discussed raising borrowing costs as inflation soared to 3.3 per cent.

Commenting on today’s figures, George Buckley, chief UK economist at Deutsche Bank, said: "This is a very significant rise that will reduce demand both for new mortgage finance and remortgaging.

“There is bound to be a knock-on effect on house prices.”

Nationwide Building Society recently revealed figures showing that UK house pices had fallen for eight consecutive months in June, dipping by more than 7 per cent below last year's peak.

Money Central: the latest house price forecasts, region by region

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