The UK's largest mortgage lender effectively closed its door to half of borrowers today by increasing rates and reducing the number of loans available.

The Halifax said that from 8pm this evening it will dramatically reduce the number of mortgage products available for borrowers with less than 25 per cent equity in their home. The lender is also restricting home loans to borrowers with less than 10 per cent equity by only making these deals available in branch.

For borrowers with small deposits, the lender will only offer two deals through brokers. The first is a three-year tracker at 2.09 percentage points above the Bank of England base rate, giving a current rate of 7.09 per cent, to anyone with a deposit or equity of between 15 and 15 per cent. It will also offer a five-year fixed-rate deal of 7.24 per cent to borrowers with a deposit of equity of between 25 and 10 per cent. Both loans have a £999 fee.

Experts said that both these deals were expensive and that the Halifax was effectively pricing itself out of the market. In the second quarter of 2008, the median amount of equity that borrowers had was just 21 per cent, according to the Council of Mortgage Lenders.

The move by Halifax caps a torrid week for borrowers. On Wednesday, Nationwide hit homeowners with a hike in interest rates.

Britain’s biggest building society raised rates by 0.2 percentage points on fixed-rate and tracker deals, adding £300 a year to the cost of mortgage repayments on a £150,000 loan.

Lenders also raised rates on buy-to-let deals to stem a rapid surge in demand following the nationalisation of Bradford & Bingley.

Woolwich, owned by Barclays, has increased rates on its buy-to-let deals by up to 0.5 percentage points. It blamed an “unsustainable” rise in the number of applications from landlords seeking to remortgage in the last three days.

Bradford & Bingley was the UK’s biggest buy-to-let lender until it was nationalised by the Government on Monday.

Bank of Ireland has also increased rates on its buy-to-let products by up to 0.85 percentage points, adding £177 to the monthly repayments on a £250,000 mortgage.

In the last two weeks lenders have effectively shut the door to landlords with smaller deposits. Bank of Scotland, owned by HBOS and BM Solutions, Britain's largest buy-to-let lender, have withdrawn deals for landlords who have a deposit of less than 25 per cent.

Melanie Bien, director of Savills Private Finance, the broker, said: “Lenders do not want to be left exposed with too attractive a deal because they fear being inundated with business, with service levels inevitably suffering as a result.”

Lenders have raised interest rates on mortgage deals in the last two weeks after a sharp increase in the cost of wholesale borrowing on the inter-bank money markets. Three-month Libor, which dictates the cost of borrowing to fund mortgage lending, stood at 6.30 per cent today, 130 points above the base rate.

Royal Bank of Scotland has cut a third of its mortgage deals for homeowners, including a two-year fixed-rate deal with an interest rate of 5.54 per cent. Its only remaining two-year fix has a rate of 6.79 per cent.

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