Barclays is set to become the first lender to use the Government's £250 billion bank debt guarantee, raising up to £1 billion through the sale of three-year notes, a move that mortgage brokers hope will kick-start the market.

Brokers hope that if banks succeed in raising money more cheaply this way, they will pass it on to consumers with cheaper mortgage rates.

Consumers have seen little benefit so far from the Bank of England's emergency half-point rate cut two weeks ago, to 4.5 per cent, because banks have withdrawn their tracker mortgages rather than pass on the fall in interest rates.

The mortgage market took another blow last night when Nationwide, Britain's biggest building society, raised the rates on all of its tracker loans.

Barclays confirmed on Tuesday that it was close to issuing three-year notes to raise at least £1 billion, which will come with a government guarantee to encourage investors to lend to the bank. As part of its £400 billion bailout plan announced on October 8, the Government said that it would guarantee senior unsecured debt instruments issued by Britain's banks.

Barclays' decision to take advantage of the guarantee was read as an early sign that the market for term loans, or notes, was reopening, which should have a positive knock-on effect on the mortgage market. Banks used the sale of notes to investors, as well as securitisations and interbank borrowing, to cover their lending to consumers. But investors have been reluctant to touch bank debt because of doubts over the financial stability of banks. The securitisation market collapsed in the sub-prime meltdown. At the same time, interbank lending has frozen and only now shows signs of thawing.

On Tuesday, the London Interbank Offered Rate (Libor) for overnight lending fell 0.03 per cent to 6.09 per cent. Banks pay Libor on their own borrowings and its present high levels make it difficult for them to pass on base rate cuts to customers.

Ray Boulger, senior technical manager at John Charcol, the mortgage adviser, said that it was key that the Government did not charge banks too high a fee for its guarantee, so that the banks could borrow more cheaply.

“If investors can buy this at a modest margin over gilts, why not do so?” Mr Boulger said. “Liquidity on the notes might not be quite as good, but a small margin would make up for that.”

Nationwide, the UK's third-biggest lender, increased rates by up to 0.7 percentage points last night on mortgage deals pegged to the base rate. The building society will levy the biggest increase on borrowers with less than a 25 per cent deposit.

A spokesperson for Nationwide said: “There have been a number of changes by our competitors and that has an impact on our decisions. We have to make sure our rates sit correctly in the market.”

Last week Nationwide reduced its standard variable rate by 0.3 percentage points. It plans to pass on the Bank of England's half-point cut to its tracker deals, which are pegged to the base rate on November 1, when all tracker rates will fall by 0.5 percentage points.

Abbey has said that it would increase its tracker rates by half a point. Woolwich, the lending business of Barclays, has increased rates by up to 0.2 percentage points.

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