Britain’s largest mortgage lender effectively shut the door to first-time buyers yesterday by refusing to offer home loans to borrowers without a substantial deposit.

Halifax told mortgage brokers that from Monday it would not lend to anyone who did not have a deposit of at least 5 per cent of the value of their new home. It will also increase rates for anyone with a deposit of less than 25 per cent. Borrowers with smaller deposits will have to pay 0.35 per cent more, increasing the cost of a £150,000 interest-only home by £43.75 a month, or £525 a year.

Brokers said that the decision would make it harder for first-time buyers to find a competitive deal. Andrew Montlake, of Cobalt Capital, the mortgage broker, said: “It is as if the clock has gone back 15 years, when everyone needed a deposit of at least 10 per cent to get a home loan.”

A spokeswoman for Halifax said the bank wanted to reward prudence. “Borrowers with a deposit of more than 25 per cent will find that our mortgages are, on average, 0.1 per cent cheaper from Monday,” the spokesman said. “Approximately 70 per cent of our new customers have a deposit of this size, so they will benefit from this change.”

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Halifax’s move came as Skipton Building Society became the first lender to charge £800 for borrowers to take out a standard variable-rate home loan. The decision by Halifax to tighten lending criteria and increase rates arrives after a week of unprecedented turmoil in the mortgage market.

The total number of home-loan products available has fallen by 13 per cent since Monday, with lenders pulling deals that were attracting too much business, or leaving the market altogether. There are now only 4,679 mortgages available, compared with 15,599 at the beginning of July. Estate agents report that as many as one third of all housing deals are falling through as buyers struggle to secure mortgages.

Britain’s banks have tightened their lending criteria significantly after the cost of their own borrowing rocketed as a result of the global credit crunch. At the same time, the collapse of Northern Rock meant that one of the UK’s most aggressive lenders had disappeared from the market. The repercussions of the Northern Rock failure look set to continue to haunt the Government.

In response to criticism that the Treasury, the Bank of England and the Financial Services Authority (FSA) were slow to react to the danger posed by Northern Rock’s financial problems, it is keen to give the Treasury more power to act in a banking crisis.

However, the biggest British banks said yesterday that they would fight the Chancellor’s plans to give an existing committee new emergency powers to manage troubled financial institutions. Instead, the banks may propose a secret traffic light-style system, with high-risk banks put on a red alert. Next week the British Bankers’ Association (BBA) will submit its response to Alistair Darling’s consultation on strengthening Britain’s financial system in the wake of the Northern Rock debacle.

The Chancellor proposed giving power to an existing tripartite standing committee to act “more robustly” in a financial crisis.

But the BBA is expected to complain that the newly empowered committee would not quicken the country’s reaction to a bank run. A source said: “Why bung in another layer of bureaucracy when what we need is speed?” Instead, the BBA is consulting its members on whether to propose to the Treasury a traffic light system, to be run by the FSA.

— European Union finance ministers and the European Central Bank agreed that shareholders would not be bailed out with public money in a cross-border bank collapse.

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