Alliance and Leicester's rates up

Alliance and Leicester is the latest of a string of lenders to raise rates

Alliance and Leicester is the latest lender to announce higher rates for new mortgage borrowers who are unable to raise a large deposit.

New customers offering a 10% deposit and taking out a fixed-rate deal will typically pay around 0.5% more than somebody offering a 25% deposit.

It follows the two biggest UK mortgage lenders - the Halifax and Nationwide - in offering tiered rates.

The credit crunch has forced banks and building societies to restrict lending.

Alliance and Leicester, which demands a deposit of at least 10%, has raised rates for new customers on a range of deals by between 0.2% and 0.9%.

Mortgage squeeze

Earlier in the week, the Woolwich - the mortgage lending arm of Barclays Bank - said it would accept a minimum of 10% deposit from new customers.

The Nationwide had imposed the same minimum deposit on all but two of its mortgage deals, following similar moves by the Co-op bank, Cheltenham and Gloucester, and the Britannia.

The credit crunch caused the mortgage market to shrink rapidly as lenders found it harder to raise funds by borrowing from financial institutions.

This caused the demise earlier this year of mortgage deals worth 125% of a property's value, and more recently the end of 100% mortgages.