The number of mortgages granted to new home buyers plunged to a record low last month as banks struggled with the credit crunch and potential buyers hesitated in the face of higher mortgage rates.

Only 42,088 mortgages were approved for new buyers by banks in December, lower than at any time since records began in September 1997, figures from the British Bankers’ Association (BBA) showed.

The news, which will add to pressure for a base rate cut, comes as more high street banks move to increase rates on popular tracker mortgages — penalising borrowers hoping to benefit from future reductions.

Britannia Building Society, the UK’s second-biggest building society, will today increase rates on its two-year discounted tracker mortgage by 0.15 percentage points for new customers.

Abbey, Alliance & Leicester and Nationwide have also raised rates.

A&L raised its tracker rate from 5.74 per cent to 5.94 per cent yesterday, while Abbey increased its tracker rate for 100 per cent loans from 6.84 per cent to a massive 7.99 per cent this week.

Nationwide has raised its tracker rates by between 0.05 and 0.15 points. Borrowers taking out a Nationwide Lifetime Tracker will pay £18 a month more on a £150,000 loan than for the same deal last week, after the rate rose from 5.74 to 5.89 per cent.

Experts said that the moves may be more than a ploy to extract more cash from borrowers.

Melanie Bien, director at Savills Private Finance, the independent mortgage broker, said: “It may appear as though lenders are being cynical in raising tracker rates just when interest rates are about to come down, but it is evidence that lenders are struggling to raise funds because of the securitisation market.”

Tracker deals account for one in four mortgages, up from one in five at the end of 2006, according to the Council of Mortgage Lenders.

The number of remortgage deals completed last month rose to 62,771, up from 59,628 in November, the BBA said. Total mortgage lending increased by £4.7 billion during the month — a slight increase on the previous month’s rise of £4.6 billion.

David Dooks, statistics director at the BBA, said: “Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks’ ability to lend. Demand for mortgages also softened in the face of increased borrowing costs and lower disposable income.”

Oliver Gilmartin, senior economist at the Royal Institution of Chartered Surveyors, said: “Weaker levels of mortgage lending is unsurprising given the tighter lending standards enacted in recent months.

"Banks have sought to rebuild margins by raising borrowing costs while the supply of loans from specialist lenders has fallen dramatically.”

The BBA report coincides with new figures showing the average first-time buyer now spends more on mortgage payments than at any time since 1990.

A review published by the Chartered Institute of Housing and the Building Societies Association shows that mortgage costs now account for 35 per cent of first-time buyers’ take-home pay.