Nationwide Building Society will no longer offer competitive mortgage deals to borrowers who do not have a deposit of at least 25 per cent.

The move is part of a dramatic lending clampdown that the society blames on higher funding costs and a cooling housing market.

The lender will now charge 0.2 percentage points on loans above 75 per cent, virtually wiping out the benefits of the latest Bank of England base rate cut.

A Nationwide spokeswoman said: "We have altered the tier structure for loans as part of our commitment to being a prudent and responsible lender and in response to the high cost of funding and a cooling housing market.

"Our prices are simply reflecting market conditions."

The move deals a further blow to cash-strapped first-time buyers, for whom getting on the property ladder without a deposit has become almost impossible after the virtual extinction of 100 per cent mortgages.

After an exodus of six big lenders, including Northern Rock and Alliance & Leicester, from the 100 per cent-plus market, only one, Dunfermline Building Society, still offers the deals.

Scottish Widows Bank, which cornered the market for loans for up to 110 per cent to professionals and graduates, cut its maximum loan-to-value to 100 per cent this morning.

The new limits squeeze out the majority of homeowners, who on average borrow 80 per cent of their property's value, according to the Council of Mortgage Lenders.

Reducing the loan-to-value (LTV) limit shields mortgage lenders from falls in house prices, which can leave borrowers unable to pay off their loans.

Melanie Bien, director of the independent mortgage broker Savills Private Finance, said: "The move shows that even the biggest lenders are being forced to reassess their attitude to risk. Lenders are keen to attract borrowers with relatively low LTVs because they are regarded as being lower risk, and rewarding borrowers in this position with more competitive rates is one way of achieving that.

"It is good news for those with sizeable deposits but less encouraging for others, particularly first-time buyers, who don't have much in the way of a deposit."

On a £150,000 home loan, a borrower would now be forced to save £37,500 to get a competitive rate of 5.68 per cent from Nationwide.

Before Friday the cheapest rates were available to borrowers taking out loans for up to 90 per cent, equivalent to £15,000 on the same loan size.

The change will also affect existing customers who wish to remortgage with Nationwide.

Although the mutual will still offer loans for up to 95 per cent of a property's value, they will carry a much higher rate of interest, at 6.32 per cent for a two-year fix.

Nationwide traditionally lent only to prime mortgage customers. However, its strategy grew bolder in 2006, when it began selling near-prime loans, introduced better deals to borrowers with small deposits and began securitising its debt for the first time.

Brokers said that the clampdown represented a return to the "old days" of mortgage-lending, before competition in the market pushed loan-to-value limits up.

Ms Bien said: "It is a bit of a return to the old days, when much heftier deposits were required. But now they are chasing margin, not market share, so the emphasis has shifted back."