Homeowners are being advised to grab a fixed mortgage now or face rates above 7 per cent on two-year deals after a sharp turnround in interest-rate expectations last week.

Markets moved to price in two rate rises before the end of the year, which would take Bank rate to 5.75 per cent, after Ben Bernanke, the US Federal Reserve chairman, and Jean-Claude Trichet, the European Central Bank president, warned of mounting inflation pressures.

Economists said such a move would be unlikely and most still expect one more cut to 4.75 per cent by the end of the year, although David Miles of investment bank Morgan Stanley, who is also an adviser to the Treasury, thinks rates will have risen to 5.25 per cent by April next year.

Experts said two-year fixes might now top 7 per cent for the first time since interest rates started coming down from double-digit levels 15 years ago, as lenders moved to price in expectations in the money markets.

The average fixed-rate mortgage last month for a borrower with a 25 per cent deposit was 6.27 per cent, according to the latest data from the Bank of England — nearly one percentage point above the cost of funding in the wholesale markets, known as swap rates.

With two-year swap rates now at 6.34 per cent, two-year deals could soon go to 7.31per cent assuming that margin remains the same.

Ed Stansfield of Capital Economics, a consultancy, said: “If the recent rise in swap rates is sustained, two-year fixed mortgage rates are likely to approach 7 per cent in the next few months. With demand in the market already so weak, that would represent another huge blow to the housing-market outlook.”

Homeowners felt the pinch almost immediately as Royal Bank of Scotland (RBS), which owns NatWest and the One Account, said on Thursday it was raising rates for new customers across most of its products.

Existing customers with a NatWest offset or One Account mortgage were also hit with a 0.25 percentage point interest rate rise to 6 per cent — a £30 a month increase in the cost of a £200,000 mortgage from July.

Melanie Bien of broker Savills Private Finance said: “RBS can do this even though Bank rate is remaining on hold for now because these accounts are linked to a standard variable rate. It is worrying to think what measures banks will take if rates actually rise.”

Abbey responded to the rise in swaps by targeting two-year fixes for borrowers with 25 per cent deposits. From today, it increased the rate by 0.35 points to 6.49 per cent. It also axed deals above 90 per cent of the value of the property and withdrew its standard variable rate for new borrowers.

Woolwich raised two- and five-year fixes by as much as 0.3 points, while Halifax increased the rate on its three-year fix for those with less than 10 per cent deposit by 0.1 points. It introduced better deals for borrowers with 40 per cent equity, however.