Abbey will tomorrow dash hopes that the mortgage crisis is over when it raises the cost of fixed-rate mortgages by 0.56 percentage points, blaming a sudden increase in the cost of inter-bank borrowing.

Only a week ago, the UK's third biggest lender, alongside Nationwide and Halifax, signalled that the worst could be over for homeowners when they began cutting some rates in response to a fall in swap rates - the money markets that determine fixed- rate lending. However, in recent days, swap rates have started to climb, following predictions that the Bank of England could increase the base rate next month because of its concerns about inflation.

Swap rates rose sharply last week, following the publication of the Bank of England's inflation report, which said that inflation could jump to 3.7 per cent by the end of the year. Abbey's decision to raise rates again indicates that it ran out of money at the cheaper level and has had to secure more funding at the new higher rate.

Simon Tyler, director of Chase De Vere Mortgage Management, said: "With more pressure on inflation from fuel and food costs, swap rates seem to be responding to the possibility of base rate going up. This is not good news for homebuyers."

For remortgagors with at least 25 per cent equity, Abbey will now charge 6.38 per cent interest on its two-year fixed rate.

The increases, which are the second big increase in a month, follow changes to Abbey's mortgage range that have squeezed out borrowers with small deposits and made it harder for others to reduce their repayments. Since the credit crunch began, lenders have been tightening their criteria as well as increasing rates to curb demand at a time when they are struggling to obtain funding for mortgage deals.

Abbey raised the minimum deposit required for most borrowers from 5 per cent to 10 per cent of a property's value to reduce its exposure to the downturn in property prices. It also made it harder for homeowners to take out cheaper interest-only deals. Those who do not have at least 25 per cent equity will no longer be able to switch from capital repayment to interest only - a common way of reducing monthly outgoings for homeowners struggling with rising living costs.

Abbey said: "As a result of our strong position in the market, we were able to reduce fixed rates last week, but the market changes have required us to pass on these increases."

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