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House prices are lower than they were a year ago for the first time since 1996, a property survey revealed today.

Average prices have dropped 1% since April 2007 to £178,555, according to the Nationwide. It is the first time one of the major national surveys has shown a year-on-year drop since the credit crunch began last summer and the clearest signal yet that the decade-long housing boom has been consigned to history.

It follows 133 consecutive months of annual house price growth since March 1996. The news came as a rate-setting member of the Bank of England’s Monetary Policy Committee gave a stark warning. David Blanchflower - an advocate of early and aggressive rate cutting - said: ‘A correction of approximately one-third in house prices does not seem implausible in the UK over a period of two or three years.’

He said the latest figures on mortgage approvals looked ‘horrible’ and said there was a real danger Britain could be caught by economic ‘contagion’ from America. However, the chances of a cut to 4.75% as soon as next month appeared to be downplayed yesterday by Governor Mervyn King.

In its monthly housing market report today the Nationwide said falling demand from first time buyers, higher mortgage costs and tighter lending criteria had all contributed to the downturn.

Its chief economist Fionnuala Earley said: ‘April’s fall in prices continues the trend of the last six months and reflects the weakening sentiment in the market brought about by poorer affordability and tighter financial market conditions.’

However, she played down comparisons with the great crash from 1989 to the mid-Nineties, pointing out that the vast majority of borrowers are either on fixed rates - and therefore protected from higher mortgage costs - or on tracker and variable rates and benefitting from the cuts in the Bank of England base rates.

She said only around 1.8m borrowers, 15% of the total, were on cheap fixed and tracker deals due to expire this year.

Tumbling house prices mean negative equity is now a serious threat to hundreds of thousands of homeowners.

And that could lead to higher mortgage bills, increasing the chances of arrears and repossession.

Here, James Coney examines the implications and explains what you can do to reduce the risks.

Are you at risk?

Could you fall into the negative equity trap?

PLUNGING PRICES

Many buyers over the past year or so have banked on house price growth to help them pay off their mortgage.

And with good reason. Since 1998 house prices have risen an average of 171% from £70,696 to £191,556. In the past five years alone they are up by 51%.

This has led to hundreds of thousands buying with minimal deposits often using interest-only mortgages, meaning that their debt is not being tackled.

Now the day of reckoning is nigh. House prices fell by 2.5% in March according to Britain’s biggest mortgage lender, Halifax, and economists are predicting significant further falls this year. Some regions have fared worse than others; in Wales they tumbled 4.7%, and in the West Midlands by 5%.

Morgan Stanley, Capital Economics and the London School of Economics have all suggested they could crash by 20%, but Halifax believes low, single-digit falls are more likely. Mortgage broker John Charcol estimates that around one in six of its customers in 2007 took a mortgage with a deposit of 10% or less.

Investment bank Morgan Stanley suggests a 15% fall in house prices would send one in ten homes into negative equity - in other words the mortgage is greater than the value of the property.

Anyone who bought with a 5% or smaller deposit using an interest-only mortgage could fall into negative equity by the summer if house prices continue their current rate of decline. Even those on repayment mortgages would have a short respite because in the early years most of the repayments are taken up by interest.

WHAT THIS MEANS

If you have negative equity on your home it will have several implications:

• You won’t be able to sell and trade up to a larger property.

• You won’t be able to take a new mortgage deal with a new lender.

• Your existing lender might not offer their best deals when your current special rate ends, so you could end up on its standard variable rate. An average High Street bank charges 7.24%, costing £1,083 a month on a £150,000 mortgage.

• If you lose your job and need to miss a payment or two your lender is less likely to take a lenient view because they know that if they repossess your home they will be out of pocket.

Even if you don’t fall into negative equity, you are likely to see the equity in your home eaten up rapidly. For example, if you paid for a £180,000 home with a 10% deposit, you’d start off with a £162,000 mortgage and £18,000 equity in your home. If house prices remained static you would, after two years, owe about £155,000 on your mortgage giving you £25,000 equity. But if your house value falls by 5% this would leave its value at £171,000, cutting your equity to £16,000.

That might not seem a problem, but the credit crunch means lenders now want you to have a bigger deposit, or more equity in your home to get their best deals. Your £16,000 is worth just 9% of your home’s value, which will leave you shut out in the cold.

MORTGAGE MISERY

There are simply far fewer mortgage deals available now than there were last summer.

Those who borrowed a considerable chunk of their property price could face a real challenge when it comes to remortgaging. This won’t just be first-time buyers who only had a small deposit. Anyone who took a leap up the property ladder to buy a bigger house, having only built up a small amount of equity from their old home, could also be affected.

In June 2007, a borrower could take up to seven times their salary and borrow 125% of their property price. Three lenders offered this option. Many more were willing to lend to first-time buyers and home movers even if they did not have a deposit.

Any borrowing above 95% of the property price was more expensive, but below this level everyone was more or less treated the same. For example, for those with as little as a 5% deposit, Skipton BS offered a two-year fixed rate of 5.59%, while Direct Line offered a tracker that was 0.28 percentage points below base rate for two years - those borrowers would now be paying just 4.72%.

If you didn’t have a deposit then Abbey would still offer you a two-year fixed rate at 6.35%. Today no one you money without a parental guarantee if you don’t have a deposit. And the choice of mortgage is much more limited.

Of the major High Street banks and building societies few will you to remortgage with just a 5% deposit.

The best two-year fixed rate is offered by Nationwide BS at an eye-watering 7% - this would cost £1,060 a month on a £150,000 mortgage compared with £929 on the old Skipton deal.

There are hardly any trackers available for those with just a 5% deposit. But if you have a 10% deposit but just want a small loan, there is Abbey with a rate of 5.49%. For bigger loans HSBC has a rate of 5.83%.

However, with a 25% deposit you can get a two-year fixed rate from 4.54% with HSBC and its RateMatcher deal, or West Bromwich BS with 5.19%, but with the possibility of a large fee.

There is no point burying your head in the sand and praying that house prices and mortgage rates may recover in the foreseeable future. Most economists have little idea how long the current market turmoil will last. If you fear negative equity then you need to tackle it now - but it will mean sacrifices elsewhere.

• Anyone on an interest-only mortgage should switch to repayment now. It will be more expensive in the short term but will save you thousands in interest in the long run. Switching a £150,000 interest-only mortgage at 5.59% to a 25-year repayment deal would raise monthly repayments from £699 to £929.

• Pay extra on your mortgage every month. This will reduce the debt and hence cut the interest that you are charged each month. Check how much you are allowed to repay without penalty - it is often around 10% each year of the total amount you owe. With Nationwide BS it is £500 a month.

• If you want to repay more than the bank will allow without penalty then put extra cash into a savings account. You can then use this to bolster your equity when you want to move home or remortgage. Use a cash Isa first. The best rate at the moment is from Barclays at 6.5% including a 1 percentage point bonus for the first year. If you saved the maximum £300 a month you would have £3,727 after one year.

• If you have used your Isa allowance for the year, Abbey pays 5.8% after tax (7.25% before tax) on its Fixed Rate Monthly Saver. Putting in the maximum £250 each month would build a lump sum £3,094.25 with interest after one year after tax.

• Use a work bonus or other windfall as a lump sum payment off your mortgage rather than squandering it on a big holiday or an expensive car. It may not be as exciting but it will save you thousands of pounds over the course of your loan and save you from paying a more expensive rate.

• Don’t be tempted to borrow from other sources such as credit cards to repay your mortgage. These are more expensive ways to borrow.

Negative equity, What price falls could mean

HOW MUCH TO OVERPAY

Our table above shows how overpaying your mortgage can reduce or wipe out negative equity. Fee-free broker London & Country has calculated how much extra you would need to pay each month to avoid negative equity, depending on the size of deposit you originally put down.

We have also worked out how much extra you would need to pay in order to build up 5% equity or 10% equity so you will be able to remortgage at the end of two years.

The sums assume a house was bought for £180,000 in June 2007 with a 5.59% deal. It is a 25-year repayment mortgage with monthly repayments of £1,115. The borrower is due to remortgage in June 2009.

Our figures take into consideration how much you would have paid off your loan using a repayment mortgage over two years - so if you have an interest-only mortgage you would have to pay more. For example, the charts show that if you took a 100% deal last June a 5% fall in house prices would leave you in negative equity. Your house would be worth £171,000 but you’d owe £173,000.

To avoid negative equity completely you would need to pay an extra £80 a month. To build up 5% equity you would have to reduce your mortgage to £162,450 - but that would mean paying an extra £417 a month.

The Chancellor today tried to avert a repossessions crisis by telling banks to do more to aid struggling homeowners.

Alistair Darling and Housing Minister Caroline Flint called on the major lenders to give more time to families who fall behind with their mortgages.

Mr Darling was making clear at a specially convened meeting that taxpayers were ‘entitled to expect’ that benefits from the £50bn cash injection to the banking system by the Bank of England would be handed on to consumers.

Repossessions are running at a third the level of the last big housing crisis in 1991 but are rising. Last year 27,000 families lost their homes, an increase of 21% from 2006 and over triple the 2003 figure of 8,500.

A study by the Lib-Dems claimed 60,000 homes were at risk. Mr Darling is concerned lenders have raised the cost of borrowing for many homebuyers despite three cuts in base rates. Where people struggle to pay their monthly mortgage bills, he wants lenders to offer immediate help and advice, including easier terms where appropriate.

Borrowers could be given ‘mortgage holidays’ where their payments are suspended for a period. Others could have the debt spread over a longer period, allowing a reduction in payment.

Banks and building societies say they have always offered such help to avoid having to repossess homes but are willing to go further. Some industry experts say the real danger of repossessions is posed by less scrupulous lenders who give consolidating loans secured on property to families with big debts.

House prices have taken their worst battering since records began, a report published today reveals.

The study showed that prices are falling at the fastest pace for 30 years. It painted a picture of lower prices, few buyers and desperate sellers - with worse to come.

And the pessimism displayed by the estate agents and surveyors polled by the Royal Institution of Chartered Surveyors help make its monthly report the bleakest since they began in 1978.

They say house prices are falling in every region of England and Wales, with the majority falling at their fastest pace since the record started. The North, Yorkshire and Humberside, East Midlands, West Midlands, East Anglia, the South East, the South West and Wales are all on the black list.

But the East Midlands is experiencing the worst problems. Prices have been falling for the last 15 months. The speed of the decline is picking up, with prices falling at the ‘fastest pace in the survey’s history’ last month.

The survey found that 78.5% more surveyors reported a fall than a rise in house prices - the highest proportion since records began. The figure eclipses the last property crash of the early 1990s.

To make matters worse, agents expect prices to keep on falling in the next quarter, according to the influential report. Today’s study exposes problems in every area of the market. The number of homes sold between January and March was 22.4 per estate agent - close to the all-time low of 18.3, in 1992. Increasing numbers of homes are put up for sale, but few buyers are coming forward.

Over the last year, the number of unsold properties in estate agents’ windows has climbed 50%. Meanwhile, inquiries from buyers have fallen for 16 consecutive months.

The surveyors and estate agents who took part in the survey were extraordinarily pessimistic.

One predicted prices will fall 30% over the next three years. Another warned the situation is going to worsen, as the mortgage meltdown has only just started to take effect.

Another declared: ‘It is tough, very tough. Buyers are looking for rock bottom bargains. The market is yet to get worse before it gets better.’ And one said: ‘If we compare sales figures this March to 2007, 2006, 2005 etc then we can only describe the market as dire.’

Last week Halifax, the biggest mortgage lender, said prices slumped 2.5% in March, the largest drop in a month since the property crash of 1992.

Yesterday Jeremy Leaf, of the RICS, insisted that ‘a significant crash’ remains unlikely, unless the number of homes coming on to the market rises ‘dramatically’.

But Shadow Chancellor George Osborne said homeowners should prepare themselves for a ‘bust’. ‘We are in the bust bit after the boom bit, if you take the figures from the Halifax,’ he said.

Two of Britain’s biggest mortgage lenders today defied the Bank of England by raising interest rates just hours before the official cut.

Nationwide building society and Alliance & Leicester put up borrowing costs as the monetary policy committee voted to reduce the base rate from 5.25% to 5%.

It underlined the crisis facing lenders in raising funds as the credit crunch leaves borrowing costs between banks well above official rates.

It also undermined the Bank of England’s ability to control the cost of mortgages and, in turn, a vital part of the economy.

Tim Fletcher of financial analysts Baseline Capital said: ‘Today’s decision is irrelevant as far as pricing for mortgage borrowers is concerned.

‘The Bank has effectively lost control of retail interest rates, which have become decoupled from the base rate.

‘Any change in the Base Rate is likely to have little or no impact on the cost of raising funds for lenders.

‘Together with the need to control demand this cost will continue to dominate retail lenders’ pricing decisions.’

Libor, the interbank lending rate, barely moved today despite expectations of the rate cut. It fell from 5.927% to 5.924%, just a fraction of the quarterpoint cut brought in by the Bank of England.

Nationwide, which also reduced rates on some of its mortgages today, blamed the high Libor rate for its decision to put up the cost of others.

‘The cost of funding continues to be high, regardless of what is happening to Base Rates,’ said a spokeswoman.

One of Nationwide’s biggest rivals reacted to its move with unconcealed surprise. ‘This shows the nation’s biggest mortgage lender is far from being the cuddly organisation it claims to be.

‘Everybody is raising rates at the moment but it is cack-handed to do it on the day of the MPC decision. It’s almost like sending a two-fingered gesture to [Bank Governor] Mervyn King.’

Official figures yesterday revealed that the average rates on two-year fixed mortgages for first-time buyers have jumped to a near eight-year high of 6.64%.

George Buckley of Deutsche Bank said: ‘Lenders will not be able to reduce mortgage rates until the credit freeze thaws.

‘There is pressure on lenders to do so but it is important to see what the true cost of funding for these lenders is. The true cost of funding is not Bank Rate. For some banks it is not even Libor.’
Bank of England graphic
Still rising: Lenders up their rates despite cut

With the Bank unable to cut rates too far or too fast because of the threat of rising inflation, economists urged it to increase funding to cash-strapped institutions to ease the liquidity crisis.

‘They need to look at other measures, liquidity-based measures, to help the markets,’ said Buckley.

The Bank has already pumped billions of pounds into the money markets and will offer another £15 billion next week.

However, it has been criticised for not providing as much funding as the US Federal Reserve and European Central Bank, which left rates on hold at 4%.

Capital Economics forecasts UK rates to fall to 4% this year and 3.5% next. ‘Interest rates need to come down considerably further,’ said Julian Jessop.

City experts welcomed the Bank of England’s decision to cut interest rates by a quarter point to 5pc today but warned homeowners against premature celebrations as the reduction is unlikely to feed through to mortgage rates quickly.

The cut, the Bank’s third in five months as it grapples with the credit crunch, was widely expected but economists remain concerned that the “dysfunctional” money markets will prevent it being passed on to mortgages.

Adrian Coles, director-general of the Building Societies’ Association, said: “The rate decision may not be reflected by changes to money market rates. Therefore the quarter point reduction will not necessarily be reflected in the fixed rates on offer straight away.”

Mortgage costs have been climbing despite successive rate cuts because banks raise their funds in the money market, which has seized up since the credit crunch struck last August. Clear evidence that the crunch is affecting house prices came this week when the Halifax revealed that prices fell 2.5pc last month - the steepest monthly decline since 1992.
Interest rates have been cut to 5pc by the Bank of England

Economists fear the Bank has lost control of monetary policy because its rate cuts are not feeding through to consumers.

In an explanatory note accompanying the rate cut, the Bank explained that the decision was taken because “credit conditions have tightened and the availability of credit appears to be worsening”. It also warned that “the disruption in financial markets could lead to a slowdown in the economy”.

Responding to the announcement, Michael Coogan, Council of Mortgage Lenders’ director general, said: “In these dysfunctional markets… to improve the market in which lenders are operating and restore consumer confidence, the Bank needs to coordinate successive base rate cuts with further injections of more widely available liquidity.”

The Bank has been injecting funds into the money markets but the key measure of funding costs - three month Libor (London inter-bank offered rate) - stood at 5.9275pc today, well above base rate. It has dropped from 6pc recently in anticipation of a quarter point rate cut.

Richard Lambert, CBI director-general, said: “The credit crunch has created a log jam in the financial system and, although interest rates are a very useful tool, the Bank also has to look at other steps to unblock credit flows.”

Andrew Smith, chief economist at KPMG, added: “The medicine may not get through to the patient. Even if money market rates fall in tandem, which is questionable, the cut may not be reflected in mortgage and commercial loan rates as lenders seek to expand margins and reduce credit supply.”

He predicted that: “With the impact of monetary policy now blunted, rates will ultimately have to fall further to achieve the same result. Rates are heading to 4pc over the next 12 months.”
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However, commentators were unanimous in praising the Bank for taking the bold decision to cut rates, despite mounting evidence of inflationary pressures.

Mr Lambert said: “Today’s decision was a difficult one for the MPC, as inflation is expected to pick up in the coming months. However, weaker economic growth through the year ahead will help keep inflation under control over the longer term, so a reduction in rates now does not compromise the Bank’s stance on inflation.”

KPMG’s Mr Smith added: “The MPC has decided that the downside risks to growth - and the consequences of underestimating them - outweigh to upside risks to inflation.”

Brent crude oil hit $108.47 a barrel yesterday and British manufacturing is enjoying a boom not seen since 2006. Retail sales figures have been surprisingly strong and employment is holding near a record high.

Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors, said: “The liquidity squeeze is most apparent in the housing market and while today’s decision is unlikely to provide immediate relief for first time buyers and homeowners seeking to refinance, this is part of a process which should ultimately help to bring down the cost of borrowing.”

Meanwhile, the European Central Bank kept interest rates for the Eurozone at 4pc as the bank continues to believe that inflation poses a greater danger than slowing growth. The bank’s president, Jean-Claude Trichet told reporters today that “We are experiencing a rather protracted period of temporarily high annual rates of inflation.”

Analysts argue that the ECB’s reluctance to cut interest rates is likely to keep the euro at its current lofty levels against sterling.

Home repossessions here could double as Britain echoes America’s property crisis, the International Monetary Fund warned yesterday.

In an alarming report, the respected Washington watchdog attacked lenders and governments for a ‘collective failure’ to appreciate the danger of the past decade’s debt binge.

It said home repossessions could double in Britain, as borrowers whose fixed-rate mortgages are about to expire grapple with rate increases of between one and two per cent. House prices could suffer a similar fate to those in the US, where there was an annual slump of more than 11% in January, the IMF said.

Meanwhile, banks around the world could face losses approaching £500bn because of the credit crisis. The analysis will add to fears that the economic crisis triggered by America’s sub-prime property collapse could fall out of control.

The Bank of England has warned that the current cash squeeze in the banking system is the worst since the Second World War. Yesterday it intervened to alleviate the continued strains in the financial markets, offering a £15bn loan to cash-strapped banks.

The IMF said central banks need to continue to take action to prevent the financial meltdown from getting worse.

Last week the global economic watchdog claimed that Britain’s property market is 30% too high, making it one of the most vulnerable in the Western world to the credit crunch.

In yesterday’s Global Financial Stability Report, the IMF said: ‘Signs of a downturn are becoming evident in certain European housing markets.’

There could be ‘outright home price declines in the United Kingdom, following the US trajectory with a one to two-year lag.’ It added: ‘Homeowners here are particularly vulnerable because cash-strapped banks are being forced to rein in the supply of credit.

‘In the United Kingdom, a sizeable share of mortgage loans face interest rates that will reset to higher levels this year, just at a time when lenders are tightening standards, adding another source of stress.’

The IMF attacked bankers for failing to exercise more discipline in their lending practices, arguing that excessive borrowing lies at the heart of the financial meltdown. In Britain alone, households have racked up more than £1.4 trillion of debts from banks, making them hugely vulnerable to the credit crunch.

The IMF said: ‘There was a collective failure to appreciate the extent of leverage (debt) taken on by a wide range of institutions, and the associated risks of a disorderly unwinding.’

That attack echoes Bank of England governor Mervyn King, who last month blasted the bankers and traders for ‘hubris’.

The IMF called for stricter supervision of banks and other financial institutions, criticising them for their ‘complacent’ attitude to the risk that cash could dry up.

Unveiling the report, IMF official Jaime Caruana said: ‘The credit shock emanating from the U.S. sub-prime crisis is set to broaden amid a significant economic slowdown. As the credit cycle turns, default rates are likely to rise across the board.’

He added: ‘With a weakening economy, write-downs and prospects for further losses are placing additional pressure on banks’ balance sheets, which may limit their capacity to lend.’

The IMF’s report covered financial risks across the world – but, unusually, it singled out the UK’s property market for special attention.

As well as painting an alarming picture of the state of house prices and mortgages here, it said that central banks around the world must redouble their efforts to help banks recover from the cash squeeze.

The Bank of England has been accused by many of being too slow to intervene in the markets.

But yesterday it stepped up the pace with the £15bn cash injection. The Bank will replace the £10bn of three-month loans it offered in January with £15bn from next Tuesday. The move is an attempt to encourage banks to lend to each other instead of hoarding cash.

Sixty thousand homes in the UK are at high risk of repossession, according to analysis by the Liberal Democrats. The study focuses on home owners that are spending 75% of their disposable income on mortgage repayments.

The number of households involved is double the amount that had their homes repossessed last year, it claims.

A government spokesman said it was “important to keep this in context”, as the repossession rate is still only about a third of that in 1991.

‘Weighed down’

Julia Goldsworthy, Lib Dem Communities and Local Government spokesman, said thousands of families in the UK are being “weighed down by massive debts”.

“As living costs rise and the credit crunch starts to bite, families are forced to cut back on essentials in order to keep a roof over their heads,” she added.

“There are almost a million fewer social homes to rent than during the last recession, while the number of families waiting for housing has skyrocketed.

“This Government has buried its head in the sand, and it is overstretched families that are paying the price.”

Ms Goldsworthy suggested a potential “housing crash” could be averted through “a national network of financial advice centres”.

“The government should also work with the banks to ensure that as many families as possible can stay in their homes, either through payment holidays or part ownership schemes.”

The government recently pledged £76m to continue the provision of free face-to-face money advice until 2011.

Jim Armitage & Hugo Duncan, Evening Standard

As the flood of mortgages being pulled extended today to competitively priced products from a range of building societies, advisers said customers were having to move quickly before the most attractive deals disappear.

Brokers said they were encouraging customers to buy their products sometimes several months in advance.

Richard Morea of London & Country mortgages said: ‘Until recently, the companies would tell us with plenty of notice if they were planning to withdraw a product so we could ring up the client and warn them. Now we don’t even get told in advance. It’s just gone.’

As many mortgages are guaranteed for up to six months, customers who think rates are going up can reserve a deal now even if their current mortgage deal does not expire until late summer.

Morea said: ‘What we’re saying is, if you like this offer, grab it now even if you don’t need it for a few months.’

In the past two days, more than 570 mortgages have been withdrawn. Last night saw Nottingham Building Society pull its buy-to-let two and three-year tracker, while the West Bromwich withdrew all its mainstream and buy-to-let mortgages, replacing them with more expensive options.

Darlington Building Society also withdrew its fixed products while Skipton announced plans for a £799 fee to its standard variable rate.

First Direct, the internet and telephone bank owned by HSBC, this week closed its doors on new mortgages, while Nationwide has jacked up rates for many borrowers, particularly first-time buyers.

Rob Clifford, of broker Mortgageforce, cautioned: ‘Can you rely upon a quote from a lender? The answer is no.

‘Lenders are not obliged to honour quotes and could elect to reject all applications or offer less attractive deals.

‘Consumers haven’t got a cast-iron deal unless they have received a formal mortgage offer from the lender.’

The Bank of England yesterday warned that almost half of all lenders will ration mortgages over the next three months.

It recently conceded that two interest rate cuts since December, from 5.75% 5.25%, had done nothing to reduce mortgage costs as banks and building societies put up their own rates. The Bank is under growing pressure to cut rates to 5% next week.

Simon Lambert, This is Money

Britain’s biggest mortgage lender has raised its mortgage rates for those without a 25% deposit - hitting almost a third of potential new customers.

Halifax’s move follows rival Nationwide Building Society’s similar decision to add a premium to its mortgage rates for those who need to borrow more than 75% of a home’s value.

Borrowers seeking Halifax’s best mortgages will see a hike in the minimum deposit needed to secure the loan.

Those looking for the best Halifax mortgage on the average home, valued at £196,500 by the bank’s index, will now need to find at least a £49,125, compared to £19,650 previously.

The bank has introduced three tiers of mortgage pricing – below 75% loan-to-value, 75% to 90% loan-to-value and 90 to 95% loan-to-value.

Halifax previously had just two mortgage tiers, with different rates for loan-to-value ratios of up to 90% and between 90% and 97%.

It will also no longer be offering loans through brokers to people wanting to borrow 97% of their home’s value, but these deals will still be available in branches at 0.35% more than now.

The changes come into force on Monday and also apply to Bank of Scotland and Intelligent Finance.

Those borrowing less than 75% will see rates around 0.1% lower than previously, while those borrowing more than this will see rates rise by around 0.14% up to 90% and more above this level.

Halifax’s move comes as lenders have axed thousands of mortgage products in recent weeks and tightened lending criteria.

Nationwide announced it was introducing a minimum 25% deposit for its best rates at the end of February, while other big name lenders are rumoured to be considering similar moves.

Halifax said its decision would benefit its borrowers as approximately 70% of its new mortgage customers put down a deposit of more than 25%.

However, due to its position as the UK’s biggest mortgage provider, the bank will also increase its margins for many borrowers.

Halifax’s parent group HBOS said earlier this week that it could be forced to slash the value of its US mortgage investments again – increasing losses from the sub-prime crisis.

Finance chief Mike Ellis said the ’significant deterioration in financial markets’ since the start of 2008 means further writedowns, were highly likely. HBOS took a £227m hit to last year’s results due to its sub-prime investments.