Mortgage holders are in a different mind set this week. After enjoying the low interest rates and hearing that for the most part interest rates would remain unchanged until perhaps 2011, homeowners are having to rethink waiting on a remortgage. Due to the news that interest rates could go up to 11.5 per cent by 2012 and 14 per cent by 2013, those that were thinking of waiting may be rethinking that waiting game.

For many months now the standard base rate has been sitting at 0.5 per cent. Though there has been a mild threat in the last Bank of England’s Monetary Policy Committee (MPC) meetings for a rise in the rate, it has yet to happen. MPC member Andrew Sentance has been trying to accomplish a 0.25 per cent rise, but has been the only vote for the increase to date.

Analysts have been releasing forecasts that the rate will go unchanged. While inflation is still above the target of 2.0 sitting after July at 3.1 per cent, it is not moving rapidly and the MPC is allowing the economy to work itself without much interference. There are many unknowns still at work, with food price inflation and increasing fuel costs, as well as the government budget cuts. It is better for the MPC to watch closely and go without any action than to move to quickly and harm the recovery process.

Of course, all of this is based on the fact that inflation will stay in control. According to Chief Economist with Policy Exchange, Andrew Lilico, there will be a double dip recession in the beginning of 2011 and then inflation will begin to grow quickly rising to at least 10 per cent. With the inflation out of control, the MPC will be forced to repeatedly increase the base interest rate, moving it to at least 8 per cent by 2012.

If the base were at 8 per cent and the banks remained with their current 3.5 per cent markup then that would mean a mortgage interest rate of 11.5 per cent. For some that could mean 900 pounds more a month in mortgage payments.

If the base rate then rose from 8 per cent to 12 per cent in 2013 and again adding the bank’s markups, homeowners currently with variable interest rates and those moving into their lender’s standard variable rate would be paying on a 15.5 per cent interest. That means a mortgage in 2010 of 700 pounds a month would amount to 2,000 pounds a month in 2013.

Lilico has awakened the eyes of those currently playing the "wait and see game" with their mortgage, as well as those thinking of buying a property. To think it could never be that bad, one only has to recall that in the end of 1970's the rate was at 17 per cent, in 1980's it was 14 per cent and 1990 it was at 15 per cent.

David Hollingworth, of mortgage brokers London & Country, said: "It is a stark reminder to borrowers not to get too comfortable with the Bank Rate at 0.5 per cent as there may be a sharp shock just around the corner."