Mortgage lenders are leading a dash for deposits by UK institutions desperate to improve their liquidity in the face of continuing market uncertainty.

In the past fortnight, 16 providers have launched high-paying savings accounts or increased interest rates on existing fixed-rate products. Analysts said yesterday that the strategy was a clear attempt to narrow the so-called funding gap being experienced by lenders - in particular HBOS, Alliance & Leicester and Bradford & Bingley.

Halifax, which is owned by HBOS, the UK’s biggest bank, has increased its three-month account twice in the past two weeks by almost 0.2 per cent in total to 6.87 per cent. The bank told investors on Thursday that the higher cost of funding in the interbank lending market had cost it £60 million in the second half of 2007.

Alex Potter, an analyst at Collins Stewart, said yesterday: “With a funding gap of around £100 billion, it makes sense for HBOS to be building the size of its deposit book. But the opposite effect is that they are having to pay greater rates for savings so, in the meantime, they are being squeezed.” Prior to the credit crisis, lenders funded their mortgage sales in part by securitising the home loans and selling them to investors such as pension and hedge funds.

However, the collapse of the US sub-prime market made investors nervous of all asset-backed securities, even those based on prime mortgages. Unable to securitise their mortgage books as profitably as previously, banks turned to the wholesale lending market but, because of nervousness about the sub-prime losses that might be lurking on rivals’ balance sheets, banks were reluctant to lend to each other.

The freeze in the interbank loan market send the cost of wholesale borrowing soaring, with three-month London Interbank Overnight Rate (Libor) hitting record highs. The banks are now desperate for an influx of savings to help fund the growth of their mortgage businesses.

Mr Potter yesterday said that banks whose wholesale loans were coming up to maturation were in a more difficult position – “Bradford & Bingley are reasonably comfortable and the fluctuation in short-term rates aren’t hitting them too badly, whereas Alliance & Leicester has rather more exposure to short-term rates,” he said.

In what appeared an attempt to grab a larger share of the market, Alliance & Leicester last week increased its variable rate E-Saver account to 6.5 per cent, penalising savers who make any withdrawals. The move came as most lenders focused on attracting savers to fixed-rate accounts.

Sue Hannums, of AWD Chase de Vere, said: “Providers want the money and most are only going to be willing to pay top rates if they know they can keep it.”

Bradford & Bingley this week announced a market-leading fixed rate savings account paying 6.8 per cent for a year with a minimum deposit of £1,000 required.

Abbey, which was overtaken as the UK’s second-biggest mortgage lender by Nationwide after the building society’s merger with Portman, launched a one-year account fixed at 7 per cent that demands a minimum investment of £50,000. It was made available to new and existing customers from Tuesday last week.

However, with uncertainty over how long Libor will remain at unaffordable levels, fewer lenders are prepared to offer top rates beyond six months.

This month, Birmingham Midshires, the sub-prime specialist arm of HBOS, increased the rate on its three-month fixed-rate account to 6.8 per cent, while Standard Life, which currently offers 175 mortgage products, boosted the rate on its fixed-rate account, due to expire in June, by 0.05 per cent to 6.8 per cent.

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