Abbey, Britain’s third-largest lender, increased its mortgage rates last night as Citigroup, the world’s biggest bank, stopped offering home loans to British borrowers.

With the credit crunch continuing to bring misery to homeowners across the country, Citigroup announced that Egg, its internet bank, had halted mortgage business.

The decision comes less than a month after Future Mortgages, Citigroup’s lending business for people with poor credit records, closed its doors to new borrowers.

More than 50,000 UK homeowners have a mortgage with Egg and Future Mortgages.

In a further blow, Bradford & Bingley, the beleaguered buy-to-let lender, increased its rates by up to 0.55 per cent. This means that aspiring landlords will now find it even more difficult to buy property.

Melanie Bien, director of Savills Private Finance, the independent mortgage broker, said that even though Egg was not one of the biggest lenders on the market, its withdrawal would still have an impact. “Less choice inevitably means higher rates.”

Abbey raised some of its mortgage rates by up to 0.26 per cent. The lender is also demanding that borrowers who can raise only the minimum 5 per cent deposit pay the mortgage arrangement fee before signing on the dotted line. The fees, which range from £999 to £2,499, are usually added to the mortgage sum being borrowed.

A spokeswoman for the bank said that its competitors had already increased their rates. “There is a risk that our lending volumes would increase to a point where our service levels would be under threat,” she said.

The lender has made more modest increases to rates on its residential range of mortgage loans, raising them by up to 0.2 per cent.

Citigroup said that its decision was partly due to the credit seizure, which is still gripping the UK mortgage market. It wanted to concentrate on areas that could reap more profits, such as credit cards and savings.

Borrowers who have an existing deal with Egg or Future Mortgages will not be affected by the decision, with their mortgage deals continuing as normal. But the bank said that it was likely they would be helped to find a deal with another lender when their current deal comes to an end.

About 1.5 million mortgage borrowers will come to the end of a fixed-rate deal this year and will have to pay hundreds of pounds extra a year for a new, more expensive mortgage, despite recent falls in interest rates.

The number of mortgages available to borrowers has dropped from more than 28,400 last June to 5,340 now, according to moneysupermarket.com, the financial comparison website.

The fallout from the US sub-prime crisis has left lenders struggling to secure funding for mortgages. In addition, lenders are being forced to keep their rates high to avoid a deluge of customers who are looking to clinch a more affordable deal.

The choice of buy-to-let loans has fallen by 90 per cent since last June, when there were more than 4,300 mortgage deals to choose from. Today there are 441. As well as raising rates, lenders are demanding higher deposits and rental coverage, making it nearly impossible for new investors to become landlords.

Almost 15,000 estate agents will lose their jobs in the next 18 months, as the housing market downturn worsens and prices continue to fall and transactions stall. One in 20 of those employed in real estate will be out of work by the end of next year, a new report by the Centre for Economic and Business Research says.

Despite the gloom in the market, with prices 3.8 per cent lower than a year ago according to Halifax and forecast to fall further, the cutbacks would merely shrink the real estate work-force back to its 2006 size. But the centre says it will only be “a matter of time” before businesses providing related services, such as architects and lawyers, suffer job losses too.

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