Double blow on mortgages

HSBC said that it had been forced to increase its twoyear fixed rate for first-time buyers by 0.3 per cent to 6.27 per cent.

Other major lenders are expected to follow suit within days as a direct result of the turmoil in the City money markets.

In a move that will penalise those trying to get on to the housing ladder, HSBC's new higher rate only applies to borrowers with a deposit of less than 25 per cent.

The new terms, which take effect tomorrow, came as mortgage lender Bradford & Bingley said it was making 300 staff redundant at an office in Borehamwood, Hertfordshire. It is one of the biggest redundancy setbacks for the capital beyond the City since the credit crunch started to bite.

The latest spate of bad news follows a warning from President Bush about the risk of a global depression if a proposed $700 billion bail-out does not get the goahead from Congress.

In a televised address, the President said "our entire economy is in danger" and failure to agree a rescue could lead to "a long and painful recession". Gordon Brown is in America meeting world leaders and Wall Street fund managers about how to tackle the meltdown in financial markets.

The Bradford & Bingley job losses add to fears that the employment impact of the credit crunch is now rippling out from the City to hit the broader economy.

The bank said it was forced to close the office to reduce costs. It handles mortgage applications forwarded by brokers, but has seen a huge drop in business in recent months. A source said: "The simple truth is the credit crunch has drastically impacted demand for new mortgages and those market conditions are set to continue into the future."

Some staff will be given the chance to relocate to Bingley in West Yorkshire, but it is thought that the vast majority will be left without work. Workers said they had been given the news this morning. Most were tight-lipped but one said: "We are all angry, how else would you feel after news like that."

The sense of events sliding out of control was heightened by the announcement from HSBC. There had been hopeful signs that the mortgage market was easing up until last week's turmoil. Rates had been steadily decreasing since the beginning of July in response to lower funding costs.

HSBC's move make it more expensive for "high risk" borrowers such as firsttime buyers with deposits of less than 25 per cent to raise a mortgage.

However, those with deposits of more than 25 per cent, who are seen as a better bet, will be rewarded with a 0.2 per cent cut in their rate. HSBC justified the move by saying that swap rates, upon which fixed-rate mortgages are based, had risen sharply during the past week.