The unstoppable rise in mortgage rates continued today despite the Bank of England's decision to keep the base rate on hold, as Alliance & Leicester became the latest lender to dramatically increase the cost of home loans for borrowers.

On Friday, the bank will raise rates on some of its most popular deals for borrowers who have an average deposit by up to 0.75 percentage points.

Like Halifax and Nationwide, it will now reserve its best-buy rates for borrowers who have deposits worth more than 25 per cent of the value of their homes in an effort to make its lending policy less risky, further denting the chances of first-time buyers and those with little equity in their homes.

For a borrower who has a 10 per cent deposit, a two-year fixed rate deal will now charge 6.99 per cent interest, up from 6.24 per cent.

On an interest-only £150,000 home loan, the difference amounts to £94 a month.

Simon Tyler, of Chase De Vere Mortgage Management, said: "This is further bad news for those who want to borrow more than 75 per cent. Alliance and Leicester are clearly feeling the pressure from the excessive demand in the market. "

The rise comes as the chairman of the Building Societies Association told homeowners that they should not expect the mortgage market to improve for at least another two years, while Nationwide, the UK's biggest building society predicted that house prices could fall further than the 5 per cent drop it had previously predicted.

Fionnuala Earley, chief economist at Nationwide, said: "We now expect house price falls in the single digits during 2008, but there are risks around this view."

Iain Cornish, who is also chief executive of the Yorkshire Building Society, said: "There is clearly no going back... In my view, it is hard to see global and domestic markets recovering in anything less than a two-year timescale, and when they do, how they operate will be very different to how they were in the first part of the decade."

Mr Tyler said that there were still a few reasonably priced deals on the market. Principality Building Society currently has the cheapest two-year fixed rate at 5.64 per cent for borrowers who have at least 10 per cent to put down as a deposit.

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