Homeowners were bracing themselves for higher mortgage costs yesterday as the UK's second biggest lender raised its rates.
High street bank Abbey, which has a nine per cent share of the mortgage market, said it was increasing its tracker mortgage rates by between 0.1 per cent and 0.2 per cent for new customers.
Standard Life Bank also confirmed it was reviewing its rates for new customers due to the turbulence in world credit markets, and it is expected to announce increases next week.
An Abbey spokesman said: "We have made some small changes, ten to 20 basis points, to our new tracker mortgages. It is important to stress that this only affects new, not existing customers.
"We often re-price our tracker mortgages and take into account many factors, such as competitor positioning and market pricing."
The news came as figures from the Bank of England showed that mortgage rates hit a nine year high during August, despite the Bank's Monetary Policy Committee keeping base rates on hold at 5.75 per cent.
Rates for all types of mortgage offered by banks and building societies increased, with the exception of one type of fixed rate loan.
The average standard variable rate rose by nearly a quarter of a percentage to 7.69 per cent up from 7.45 per cent in July and 6.4 per cent in August last year.
This is the highest rate for standard variable loans since November 1998 when the Bank base rate was 6.75 per cent.
The Council of Mortgage Lenders said the increase was due to a combination of lenders raising their rates in response to July's hike in base rates, as well as a response to the current volatility in global credit markets.
The increase in mortgage rates is the first sign that the problems which began in the US sub-prime mortgage market, which lends to people who would be turned down by mainstream lenders, is hitting UK homeowners directly.
Ray Boulger, senior technical manager at John Charcol, said Abbey was likely to be the first of many lenders to raise its rates.
He said: "I think now we have had one major lender move its tracker rates, we can expect others to follow suit."
He said there had been a sharp movement in three-month inter-bank Libor rates, upon which standard variable rate mortgages are partially based, with these rising by around 0.85 per cent during the past month to stand at 6.9 per cent.
The increase in mortgage rates is bad news for people who are due to come off fixed-rate deals in the coming months.
The Council of Mortgage Lenders estimates 2.8 million homeowners will be coming off fixed-rate deals in 2007 and 2008. It said someone who took out a loan at the bottom of the market when rates averaged 4.6 per cent would be facing a hike of 0.75 per cent to 1.5 per cent in their new rate, the equivalent of up to £100 a month on a £114,000 mortgage.