Northern Rock, the Government-owned lender, has announced that it is pulling all its tracker deals for homeowners and landlords and is expected to increase rates when it relaunches the mortgages later this week.

It follows a move by Abbey earlier today to increase interest rates on tracker deals by up to 0.5 percentage points.

Tracker deals are pegged to the Bank of England base rate. The bank, owned by Spain's Santander, has effectively reduced or cancelled out the Bank of England's expected rate cut tomorrow, designed to alleviate the pressure on over-burdoned homeowers.

Experts say that lenders are likely to continue to protect profits margins at the expense of homeowners.

Aaron Strutt, of Chase de Vere Mortgage Management, a broker, said: "All the big lenders are expected to change trackers in the next few days. The margins between new tracker rates and the base rate are going to continue to increase."

Northern Rock said it would review its tracker deals after the base rate announcement at midday tomorrow by the Bank of England's Monetary Policy Committee (MPC).

Chelthenham & Gloucester, owned by Lloyds TSB, is also rumoured to be looking at its tracker deals and other lenders are expected to follow suit

Earlier this week, Peter Mandelson, the Business Secretary, added to the pressure on lenders to pass on the Bank of England's expected base rate cut to homeowners, saying that that banks who did not would face a customer backlash.

His comments came after a senior executive at HSBC said that it was unlikely that homeowners would see the full benefit of the Bank's reductions.

Abbey, Britian's second biggest lender, was the first bank to raise tracker rates after the last base rate cut in October. The bank increased the rates on tracker deals by 0.5 percentage points just a day after the MPC cut borrowing costs by half a point. Every other major lender followed suit.

Tomorrow the base rate is expected to fall by at least 0.5 percentage points, from 4.5 to 4 per cent. However, some commentators are calling for a deeper cut.

Geoff Tresman, Chairman of Punter Southall Financial Management, an independent financial adviser, said: "A one per cent cut would bring us in line with both Europe and America and would send out a significant and positive message to consumers and markets alike that the Bank of England knows the depth of the problem and is prepared to act."

In the last month, conditions on interbank money markets, which banks use to fund new mortgage lending, have sharply improved. Three-month Libor, which dictates the cost of tracker and variable-rate loans, has fallen to its lowest point since the collapse of Lehman Brothers in September. Meanwhile two-year swaps, which determine the cost of fixed-rate loans, are at their lowest point for over five years.

However, Ray Boulger, of John Charcol, the broker, warned that the spread between three-month Libor and the base rate remained historically wide, preventing banks from cutting rates further. "The gap between trackers and the base rate is going to carry on getting wider for the next six months until conditions in the money markets ease further," he said.

He said that a lack of competition between lenders and a cautious attitude towards risk would ensure that rates did not fall in line with the base rate for new customers for the foreseeable future.

Millions of existing customers with a tracker deal that is pegged to the base rate will automatically benefit from a cut tomorrow.

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