Halifax, the UK's largest mortgage provider, is set to increase rates on some of its most popular mortgage deals by 0.5 per cent from tomorrow, despite a quarter point reduction to the UK interest rate last week.

From Wednesday, Halifax will increase one of its two-year fixed mortgage rate deals from 6.09 per cent to 6.59 per cent, adding £46 a month to borrowers' repayments on a £150,000 loan.

On a two-year tracker, the rate will increase from 1.49 per cent above base rate to 1.99 per cent to give a current rate of 6.99 per cent.

Halifax is increasing its rates despite a plea from Chancellor Alistair Darling for banks to help ease Britain's worsening mortgage market in return for more help from the Government.

As well as the Bank of England's Monetary Policy Committee cutting the interest rate for the second time this year from 5.25 per cent to 5 per cent, it also pumped in an extra £5 billion into the banking system today. This brought the total cash injection to £15 billion which is aimed at helping cut the rate banks charge to lend to each other which in turn influences how much lenders charge customers.

Mr Darling said yesterday: "We know this is a difficult time. We've got to get through it and we can get through it. What we are saying is: we are helping the banks; the banks have got to help people as well."

However, last week's interest rate cut has made little difference to the current mortgage climate with only a handful of lenders passing on the cut on their standard variable rate deals and several, including Nationwide, Alliance & Leicester and Britannia increasing rates instead.

Brokers said that Halifax's decision could sound the death knell for the popular two-year fixed rate deal, sending out a signal that the lender wants borrowers to commit to a longer term mortgage.

One mortgage expert said: "A jump of this size means Halifax are pricing themselves out of the two year mortgage market — they clearly don't want the business."

Halifax will also reduce the maximum loan size for borrowers seeking a two-year fixed deal from £7.5 million to £500,000, effectively forcing higher-net worth borrowers on to longer-term deals. Three, five and 10-year fixed rate deals are still available on loans worth up to £7.5 million. Halifax said that rates on these deals would stay the same.

In a memo to brokers seen by The Times, Halifax said: "Clients taking longer term deals now benefit from our most competitive rates."

A fortnight ago, Halifax stopped lending to anyone without a 5 per cent deposit and increased rates on deals aimed at borrowers with a deposit worth 25 per cent or less by 0.35 points. It decreased its SVR by 0.25 points on Thursday in response to the base rate cut, however only a tiny proportion of borrowers with an SVR are expected benefit from this.

Simon Knight, the chief executive of GMAC-RFC, which today announced 280 job cuts, said: “Liquidity available for mortgages has continued to diminish in the UK market into 2008. The reduction in our workforce is a direct response to current market conditions, and reflects our expectation that these conditions will prevail for some considerable time. In a much smaller market, with less liquidity generally, it is sadly necessary to take this step.”