Nationwide, the UK's largest mortgage lender after Halifax, said today that it wanted to turn away business to take greater control over the amount it lends.

From tomorrow it will increase the rates on its tracker deals by more than half a percentage point in an attempt to become less competitive.

This will come as an added blow to homeowners who are already facing large increases in their monthly mortgage repayments.

About 1.4 million people will come to the end of fixed-term deals this year, and the average homeowner with a £150,000 mortgage will have to pay between £60 and £120 a month extra for a new fixed-term deal.

If other lenders follow Nationwide's example, their repayment burden will rise further.

The increase is the fourth since January and takes Nationwide's two-year tracker rate up by 0.57 percentage points to 7.1 per cent.

At present the bank base rate is 5.25 per cent.

All lenders have been increasing their rates in an effort to protect their margins during the credit crunch.

Just under a third of Nationwide's mortgage funding comes from the wholesale markets, where the price of borrowing has soared after the credit crunch.

But the lender said that although this was reflected in the new, higher rate, they were also responding to rate rises by competitors that had made their deals seem more competitive than they wanted.

A spokeswoman from Nationwide said: "It's really about ... adjusting rates so we are not overly competitive."

The lender is also set to increase the rate on its only other tracker deal by 0.51 percentage points.

Fixed rates will rise by 0.2 percentage points.

Tracker deals have become increasingly popular this year as the Bank of England has signalled that more interest rate cuts are on the way.

Tracker deals move in line with the base rate, cutting borrower's repayments each time the base rate falls.

IF.com, which is owned by Halifax-owner HBOS, has also increased its tracker rates by up to 0.5 percentage points.

Heather Scott, of IF.com, said: "Halifax wants one in five mortgages, but no more than this. We want to make sure we get our share, but no more than that.

"We have been getting a large number of mortgage applications, so it's really about managing inflow."

Mel Bien, director of independent mortgage broker Savills Private Finance, said: "Lenders are not actively looking for customers, so they are competing not to have the lowest prices.

"This is really bad news for borrowers, as rates could go up and up, with no relation to the base rate or Libor."

She said: "This reflects how hard the liquidity crisis has hit, and lenders such as Nationwide continue to seek quality business or margin rather than market share."

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