Homeowners approaching the end of a fixed deal are also being encouraged to compare their options early

Mortgage holders have been given a fresh warning over borrowing costs after the average rate paid on newly agreed home loans increased in June.

The latest Bank of England figures come as almost 1.8 million mortgage deals are expected to expire this year, leaving many homeowners at risk of higher monthly repayments.

The Bank's Money and Credit report shows that the effective interest rate on new mortgages rose from 4.22 per cent in May to 4.35 per cent in June.

Separate Moneyfacts figures show that the average two-year fixed mortgage has reached approximately 5.59 per cent, while the typical five-year deal stands at 5.61 per cent.

Sam Twyford, marketing director and credit expert at Checkmyfile, described remortgaging as "one of the clearest stress tests in the market".

He explained that moving from a fixed rate of 2 per cent to one around 5 or 6 per cent could add hundreds of pounds to a homeowner's monthly outgoings.

Despite higher borrowing costs, net mortgage lending more than doubled from £3.3billion in May to £7.7billion in June. The total was also comfortably above the previous six-month average of £4.9billion.

However, the sharp increase does not necessarily mean that demand for homes has recovered.

Mortgage approvals for house purchases rose from 56,600 in May to 58,200 in June, but remained below the six-month average of approximately 61,400.

Richard Pinch, senior director at banking and credit advisory firm Broadstone, said: "Mortgage approvals remain below their recent average, indicating that activity is still being constrained by affordability pressures and uncertainty over the outlook for interest rates."

Sarah Coles, head of personal finance at AJ Bell, offered a similarly cautious assessment.

She said: "Approvals are still pretty sluggish, so this isn't exactly a busy market, it's just a slightly less deathly one."

Ms Coles suggested the modest increase may partly reflect the Iran peace deal announced on 23 June, which depressed oil prices, reduced inflation expectations and started a retreat in mortgage rates.

However, affordability remains a major obstacle, particularly for buyers in more expensive areas.

The latest lending figures follow a separate Bank of England forecast warning that just over five million homeowners are expected to face higher mortgage repayments by the end of 2028.

That is one million more than the four million borrowers projected by the Bank in December, with the revision reflecting the impact of the Iran war.

The Bank's Financial Stability Report said the average owner-occupier reaching the end of a fixed-rate deal during the next two years is likely to pay an additional £45 a month.

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This would be smaller than the typical £120 monthly increase experienced by borrowers who secured new deals between the end of 2022 and the end of 2024. However, some homeowners face a much sharper increase.

Around 750,000 borrowers currently paying less than three per cent interest are due to leave those deals this year. The Bank estimates that their repayments will rise by an average of £170 a month.

Mr Pinch warned that renewed conflict in the Middle East had "once more clouded the short to medium term economic outlook". He added that the arrival of a new Prime Minister had also created uncertainty about the domestic housing market.

Mr Twyford cautioned that the increase in mortgage approvals should not be interpreted as evidence that lenders are relaxing their checks.

He said: "If anything, they're paying closer attention to how applicants have managed their finances over the past few years, when household budgets have been under the greatest pressure."

First-time buyers are increasingly reaching their deposit targets later than planned following years of elevated rents and rising household costs. Some are also applying with more outstanding credit than buyers would typically have carried a decade ago.

Mr Twyford said: "Looking at the mortgage on its own no longer gives the full picture of someone's finances."

He urged prospective borrowers to review their credit reports several months before applying, giving them time to correct inaccurate information, remove outdated financial links or address borrowing they may not realise is still being recorded.

Homeowners approaching the end of a fixed deal are also being encouraged to compare their options early.

Victor Trokoudes, founder and chief executive of smart money app Plum, said: "It's essential that homeowners review all their options and start making plans as early as possible, especially as it's likely a majority will face higher rates."

Most lenders allow borrowers to secure a new rate up to six months before their existing deal expires. This can provide some protection against further increases while preserving the option to reconsider if rates fall.

The Bank of England's Monetary Policy Committee will announce its next interest rate decision tomorrow. Analysts broadly expect policymakers to keep the base rate at 3.75 per cent.