The credit crunch on Thursday forced three of the UK’s biggest lenders to tighten the supply of home loans and charge more for them in moves that are likely to put further pressure on the property market.

Millions of home loan borrowers now face higher interest rates as banks pass on higher wholesale funding costs as conditions worsen in money markets.

Home loans will also become harder to secure from Friday, even for those with unblemished credit records, as banks apply more stringent criteria to mortgage approvals and pull some competitive products to avoid being flooded by new applications.

“It is the law of supply and demand. There is less mortgage finance available and it is more expensive,” said HBOS, the UK’s biggest mortgage lender.

Nationwide, the UK’s second largest mortgage lender, increased interest rates on one of its main products to deter new borrowers by making them less attractive. It will increase the cost of two-year mortgage tracker rates for new customers by 0.57 percentage points to 7.1 per cent and is increasing its fixed rate mortgages by 0.2 percentage points.

Cheltenham & Gloucester, part of Lloyds TSB, increased the prices of certain two-year tracker rates by about 30 basis points, as did IF, a subsidiary of HBOS.

The moves will be a blow to consumers who are due to refinance mortgages this year and face a sharp jump in monthly payments.

Ray Boulger, technical director of mortgage broker Charcol believes that more than 2.75m people will be hit when they come off any sort of mortgage deal this year – whether it is a tracker or fixed-rate deal.

The increased mortgage rates partly reflect the higher costs of wholesale funding for banks and building societies, which has risen sharply in recent days. The three-month London Interbank Offered Rate – the rate at which banks borrow in the wholesale market – has climbed to around 6 per cent, the highest this year.

This means there is a 0.75 percentage point gap between Libor and the Bank of England base rate, which is used by banks to determine the price of mortgage rates for consumers.

Nationwide said more expensive funding was one reason behind its decision. It added that it was receiving a large volume of new mortgage applications after rival banks – which rely more heavily on wholesale funding – unexpectedly pulled similar deals.

This made Nationwide’s products seem more competitive than they were intended to be and led to it being swamped with far more mortgage applications than it had intended to take.

Lloyds, which also uses the wholesale markets less than other banks, said it had also upped its rates at C&G to avoid being inundated by new mortgage applications, which would affect the service it could offer to existing customers.