Nationwide scraps all loans above £500,000 and demands 25% from customers with standard variable rate 'to limit its business'

The Nationwide yesterday announced some of the most dramatic changes to the mortgage market in 60 years.

The building society, the country's second largest lender, capped the amount it is prepared to lend to new borrowers at £500,000.

The Nationwide is the first major lender to do this and its decision is a worrying indicator of the state of the mortgage market.

Last year, each day about 70 borrowers took out a loan with a bank or building society for £500,000 or more.

At the beginning of April, there was no limit on the amount that Nationwide was prepared to lend.

A £1million cap was imposed on April 11 and from Thursday that figure will be halved.

In a second blow, Nationwide made the extraordinary move of limiting the number of those who can borrow on its standard variable mortgage rate.

Traditionally, this is the most expensive rate which most borrowers avoid, knowing they can get a cheaper short-term deal.

But the crisis means that the building society has been bombarded with applications.

Its standard variable rate - 6.74 per cent, due to fall to 6.49 per cent on Thursday - was very attractive compared to the sky-high rates of rival lenders.

From Thursday, the Nationwide will offer this rate only to new borrowers who are taking out a loan worth 75 per cent or less of a property's value.

In a third move, it has raised its minimum deposit for most of its fixed and tracker mortgages from 5 per cent to 10 per cent.

Experts said the measures added up to the most significant upheaval in the mortgage market since the 1940s.

Ray Boulger, of mortgage broker London & Country, said: "This is the biggest change since the Second World War. Even in the depths of the early 1990s bear market, we never saw lenders make the changes that Nationwide is making this week."

The measures affect borrowers new to Nationwide. Existing customers who want to remortgage will be unaffected.

Nationwide said they were a "prudent and sustainable" way to manage its business during the current crisis.

Peter Williams, of the Intermediary Mortgages Lenders' Association, said the situation was "unparalleled".

"It takes one back to the preliberalisation mortgage market (of the mid-1980s) where people were queued and rationed.

"We're actually in a position where the mortgage market is looking very, very volatile and very, very vulnerable."

The reality for homebuyers is that they cannot get a cheap deal unless they are borrowing 75 per cent or less of a property's value.

Earlier this month the Bank of England made available a £ 50billion lifeline to free up the mortgage market but it appears to have had little effect.

Sean Gardner, of website MoneyExpert.com, said: "The biggest struggle now is not being able to afford a mortgage - it's being able to get one, despite Government efforts to get lenders lending."

In another dramatic move, Abbey will today slash the amount it is prepared to lend to those taking out interest-only mortgages from 75 per cent to 50 per cent of a property's value.

This cut applies to buyers who do not have a specified means of repayment, such as an endowment plan or an Individual Savings Account.

The change will especially hit first-time buyers. Such loans offer a cheaper way on to the property ladder because the capital is not repaid.

There was further evidence from the Land Registry of the crumbling property market.

The number of homes sold in January was 53,221, down nearly 40 per cent on the same month last year.

In England and Wales, house prices fell 0.4 per cent in March, following a 0.1 per cent fall in February, to an average of £184,798.