The UK's biggest lender today became the latest bank to increase the cost of its home loans after a week of turmoil in the mortgage market.

The Halifax announced that from Monday it will raise mortgage rates for customers with deposits of less than 25 per cent. But the bank said that its new pricing structure would provide cheaper loans for customers with larger deposits.

A spokesman for the Halifax said: “There is some pricing upwards but it’s very much in line with the market.”

Louise Cuming at comparison service Moneysupermarket.com says the average rate increase for a borrower with a 10 per cent deposit will be 0.2 per cent. “For a homeowner with a £100,000 loan, this would mean an extra £12.18 in their monthly repayments.

“Customers with just a 5 per cent deposit will see their rates increase by even more - around 0.35 per cent. On a mortgage of £100,000 this would mean paying an extra £21.39 a month.”

The move comes after a number of lenders have increased rates, or withdrawn from the market completely. The number of different mortgages available has fallen by 13 per cent since Monday as lenders pulled deals that were attracting too much business.

There are now just 4,679 different home loans available, compared with 15,599 at the beginning of July. On Tuesday, First Direct withdrew its entire mortgage range from new customers. At the same time, the Co-operative Bank pulled all of its two-year deals and Lehman Brothers’ two sub-prime divisions, Southern Pacific Mortgages Limited and Preferred Mortgages, effectively withdrew from the market altogether.

Yesterday Woolwich, the mortgage arm of Barclays, increased rates on its lifetime trackers by between 0.55 per cent and 0.70 per cent, depending on the size of the loan while Hinckley & Rugby Building Society said customers would no longer be able to take mortgages with them when they moved house.

David Hollingworth, of London & Country, the mortgage broker, said: “It has got to be one of the most rapidly changing and volatile weeks any of us can remember. The credit crunch has really got a grip on the mainstream mortgage market and there is nothing to suggest that the situation is going to improve in the near future.”

In a separate development, more than two thirds of unsecured loans were granted without borrowers being asked to prove their income in the past twelve months, according to a survey by comparison service uSwitch.com.

As banks come under heavy criticism for irresponsible lending amid the continuing credit crisis, critics say that lenders are continuing to “fuel the fire” by not making sufficient credit checks when processing loan applications.

Around 4.1 million unsecured loans were issued over the past year, worth £29.9 billion, yet just 21 per cent of borrowers actually provided proof of their income.

uSwitch anticipate that banks will discredit the survey by claiming most customers apply to their existing bank for credit, meaning the lender already has details of the borrower’s income. In fact, 45 per cent of all unsecured loan applicants did not apply for the loan through their bank.

This week the Banking Code was amended to force banks to carry out more rigorous checks on loan applications. It is now compulsory to carry out a credit reference agency check alongside either income and financial commitments, historical financial behaviour or credit scoring.

But critics say that the effectiveness of these checks is dependent on which are carried out and that there remains no obligation for lenders to check a borrower’s income.

Mike Naylor, personal finance expert at uSwitch.com, says: “With more than 7,716 loan repayments being missed every day and record write-offs, you might think that lenders would have learnt their lesson, but the potential profits have clearly been too good to resist.

“While the credit crunch has forced lenders to tighten up their lending criteria, these latest amendments to the Banking Code do not go far enough to help promote responsible lending in all cases.”

The survey also revealed that almost 1.3 million people took out a loan in the last year to consolidate debt, yet only 23 per cent of borrowers closed down existing debts that should have been cleared with the loan. In fact, one in four who took out a consolidation loan went on to build up additional debts, averaging £2,221 each.

A spokesman for the Consumer Credit Counselling Service, a debt charity, says: “Consumers in financial difficulty should seek independent advice from a debt charity as soon as possible. The earlier the problem is tackled, the better. We can help devise a debt management plan and, if necessary, negotiate lower repayments with lenders on your behalf.”

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