The average rate for a two-year fixed mortgage has increased to 5.16% despite falling costs in funding.

The rise is thought to have been caused by a flurry of lenders increasing the cost of their deals despite the fact that two-year swap rates, upon which the deals are based, continued to sink to 2.05%.

Financial information group Moneyfacts said the current margin of 3.11% was the highest since the onset of the credit crunch and could possibly be the highest ever.

Ray Boulger, senior technical manager at John Charcol, said the differential now being charged by lenders was the highest in his memory and warned borrowers against taking out a fixed-rate deal.

There was also an increase in the margin charged on five year fixed-rate mortgages, which reached an average of 2.64% on a typical mortgage rate of 6.12%.

Nationalised bank Northern Rock started the latest round of repricing when it increased the cost of its five-year deal by 0.6% to 6.29%.

The Royal Bank of Scotland joined in by hiking its five-year fixed-rate loans by 0.6%, while the Post Office repriced its entire fixed-rate range, including its buy-to-let mortgages.

Lenders continued to blame the increases on a need to price some customers out of the market, claiming that any group which has a rate that stands out as being competitive was being quickly overwhelmed with mortgage applications.

Mr Boulger said: "Fixed rate mortgages started to rise quite sharply on the back of swap rate rises at the beginning of June, but when they started to go back down, fixed rates continued to rise.

"Some lenders are putting their rates up in response to other lenders putting their rates up."

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