Nationwide jacks up deposits to 25%

Nationwide today told housebuyers in London they will need to raise a deposit of at least £75,000 or face higher mortgage costs.

The lender increased the minimum deposit required to secure its best rates from 10% of the value of the property to 25%. With the average price of a London house now more than £300,000, buyers will have to raise at least £75,000 up front. It is a major blow for first-time buyers in particular.

The clampdown by Nationwide comes as banks and building societies tighten lending conditions following the credit crunch. High loan-to-value mortgages have all but disappeared while the number of people defaulting on their mortgages is rising steadily.

Until today, borrowers needed only to raise a deposit of 10% or more to take advantage of Nationwide's best rates. They now need 25% or more - or face an extra 0.2% of interest. The rise only affects new borrowers and wipes out the benefit they would have enjoyed following this month's cut in interest rates by the Bank of England.

A Nationwide spokeswoman said: "Our costs of funding are higher and, like all lenders, we have to adapt to changes in the market place."

Nervous rival lenders are set to follow suit as they chase margins rather than market share. Melanie Bien of Savills Private Finance said: "We're not seeing anybody going after market share. Instead, they are increasing margins. Six months ago, you could find tracker rates at just below the Bank of England base rate, but now they are at least 0.5% above base rate."

David Hollingworth of mortgage broker London & Country Mortgages said lenders are now much more cautious than they were before the credit crunch took hold.

The clampdown comes amid deepening gloom over the housing market. Property website Rightmove today said house prices fell for a fifth consecutive month in February. The average price of a house in the UK slid 0.2% to £174,400, leaving it just 1.4% higher than this time last year - the lowest rate of growth for nearly two years.

Richard Donnell at Hometrack said: "A small but growing number of buyers appear ready to dip their toes in the market again, but any upward pressure on prices is likely to remain limited for the foreseeable future."