Nationwide raising its home loan rates

From tomorrow, rates on its tracker deals will rise by more than half a percentage point to 7.1%.

Lenders are desperately trying to reduce their lending exposure as the wholesale lending market, where they obtain much of their financing for new mortgages, dries up. Figures today showed the Bank of England is lending only a fraction of what British banking groups are demanding.

The auction of money in the Old Lady's weekly open market operation reveals that British banks were scrambling to borrow nearly £38 billion this week.

However, the Bank made only £13.6 billion available, meaning that for the second week running the auction was around three times oversubscribed.

That shows banks have only received a little over a third of what they had been demanding. Last week they were after more than £30 billion but received less than £11 billion.

Fears that the liquidity crisis is not getting any easier, andmay be worsening, were also backed up a rise in the key Libor rate, the level at which London banks are prepared to lend to each other. The benchmark three-month Libor rate today topped 6%, fixing at 6.00375%, its highest since December indicating that banks are as windy as they have been at any time during the recent crisis.

Goldman Sachs said the Libor spreads had become "alarmingly wide".

The rise in Libor is also painful news for the banks left short in the Bank of England's open market operations. The weekly auction is at the Bank's official base rate, currently 5.25%, meaning banks that need to borrow more are having to pay at themore punitive Libor rate of around 75 basis points over.

The cost of borrowing for already-stretched banking groups is likely to be behind the comments of the Governor yesterday before the Treasury Select Committee. Mervyn King told MPs the financial crisis had "moved to a new and difficult phase".