Fear in mortgage arrears.

Debt charities have sounded the alarm as 4mn mortgage borrowers face higher rates next year, increasing the average annual bill by £3,000 and piling pressure on household finances.

Concerns mounted on Thursday after the Bank of England increased interest rates to 3.5 per cent to rein in inflation as prices rose 10.7 per cent in the year to November.

Debt charities fear the sharp increase could make mortgage costs unaffordable for many homeowners and urged them to ask lenders for help.

«On top of the high cost of food, energy and other essentials, this additional pressure will tip many into financial difficulty — and we can expect to see an increase in mortgage arrears as a result,» said Jane Tully, director of partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline.

Economists forecast they will go as high as 4.25 per cent, even though they believe inflation has peaked.

Mortgage brokers predict mortgage rates could still edge down as the gilt market, off which fixed-rate deals are priced, had already accounted for the rate increase by the central bank.

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