Building societies began turning borrowers away yesterday. A series of small societies, including Bath Building Society and Earl Shilton Building Society, withdrew all their home loan offers after it became impossible to secure funding for lending.

The sudden exodus shows that the turmoil in the credit markets is trickling down to building societies, many of which rely on interbank lending for as much as 30 per cent of their funds.

Pressure in the lending markets forced the Bank of England to make available a further £10.9 billion — £5 billion of which was emergency cash — to meet demand. That came after the issue of £5 billion in emergency money this week, which was five times oversubscribed.

The Bank’s efforts have had little effect as the high street banks, wary of a slowing economy and an impending US recession, sit tight on their cash and refuse to lend.

One source, speaking on behalf of a medium-sized building society, said that the mutuals had lost out to bigger institutions in the scrum for what funding was left. Large banks had more clout because they could buy bigger chunks of money, he said.

The restricted supply and high demand for funding has pushed up the price of borrowing to a level that some societies cannot afford.

The London interbank lending rate, the interest rate at which banks and building societies borrow, rose to 5.97 per cent yesterday, more than 0.7 per cent higher than the Bank of England base rate. At the moment, the pain is mainly felt by the smaller building societies, but bankers said that some of the larger societies were feeling pressure too. One said: “They’re going to have to think about how they find funding. And if they can’t find any they’ll have to go to the Bank of England.”

There are 59 building societies in Britain, with assets totalling £350 billion. Nationwide is the market leader by far, with £166 billion of assets.

Bath Building Society ranks 45th, with 20,066 customers. A spokesman said: “Wholesale money is difficult to get and we have come to a standstill. We are hoping it will be for just a month, but we have taken on so much \ we have run out of money to lend at the moment.”

Newbury, Melton Mowbray, and Tipton & Coseley building societies, all mid-sized mutuals, said that they had so little funding that they would lend only to people in their local areas. West Bromwich and Derbyshire said that they had withdrawn mortgages for sub-prime borrowers.

In a damning report this year, the CBI said that Britain’s building societies could be forced into a fresh round of mergers and acquisitions as paralysed wholesale funding markets destroyed profits. It said that confidence among mutuals was at its lowest since its polls began 18 years ago. Societies, which rely heavily on customer savings to fund home loans, are desperately trying to boost coffers by introducing best-buy savings rates.

— A hedge fund set out to drive down the prices of firms listed on the London Stock Exchange, it was claimed last night. Traders from the unnamed London firm are alleged to have set up front companies so that they could pose as researchers or journalists to circulate negative information. Unfounded rumours caused HBOS share prices to fall by 17 per cent in early trading on Wednesday.