HOMEOWNERS have been warned that even borrowers with big deposits, high incomes and good credit records may be turned away as the mortgage freeze deepens.

Nationwide, Britain’s biggest building society, refused a mortgage request from a long-standing customer even though he had 50% equity in his £1.4m home, a six-figure income and a clean credit record – just because he had become self-employed.

Last week, as the squeeze intensified, Nationwide’s lender for the self-employed, The Mortgage Works, pulled out of the market leaving such borrowers with few options.

Until now, the crunch has hit mainly those with small deposits and imperfect credit records, but lenders are further tightening their criteria. Halifax, Britain’s biggest lender, will raise its trackers and fixes from tomorrow, targeting people with small deposits.

A two-year fix for remortgagers with a 5% deposit will increase by 0.45 percentage points to 6.79%, adding £676 a year to the cost of a £200,000 loan. However, borrowers with deposits of more than 10% will see smaller increases and those with more than 25% could even see rates fall slightly.

Halifax also lifted rates on its two-year trackers for borrowers who have a 10% deposit by 0.25 points to 6.74%, eclipsing any benefit if the Bank of England cuts interest rates to 5% next week, as expected.

Ian Cordwell, 44, left his job as managing director at a major insurer to become a self-employed consultant last year but his salary remained the same – a good six-figure sum.

He decided to move from a £1.4m house to a £1.3m home in Dorset but, despite owning 50% equity in his property and wishing to pay off £100,000 when moving, Nationwide refused to allow him to remortgage.

Cordwell said: “I couldn’t believe the illogi-cality that Nationwide adopted, of preferring me to stay with a larger mortgage rather than allowing me to reduce my mortgage without damaging their security. I was dumbstruck.” Ray Boulger of broker John Charcol, said: “Home loans will still be available throughout the summer.

However, people are going to have to get used to more expensive deals. Those we would not have expected to struggle could find they fall into that category now. This includes the self-employed – even those with good deposits and incomes who would have had no problems a few months ago.”

Nationwide said: “Our standard requirement is that a self-employed applicant must have the evidence from the last two years’ trading to confirm their income. Specialist lenders may well cater to applicants who cannot provide this.”

However, the self-employed are likely to find getting a mortgage harder in future after Lehman Brothers, the US bank behind Alliance & Leicester’s self-certification loans, quit the UK market last week facing billions in sub-prime losses. Lenders are also clamping down on borrowers with offset mortgages, often taken out by people who overpay each month to clear their debt quicker. They are an easy target as they are generally on variable rates, which can be raised at the lenders’ discretion.

Last week, NatWest, part of Royal Bank of Scotland, raised its offset mortgage rate by 0.25 points to 6.45% even though Bank rate has been on hold and is expected to fall.

Wealthy borrowers with big bonuses are not immune. Cheltenham & Gloucester, part of Lloyds TSB, has instructed brokers that borrowers with bonuses of more than £100,000 should be referred to underwriters and will need to provide their bonus history for the past two years. They will also need to provide details of anticipated bonuses, including dates and the method by which bonuses are paid – that is, shares or cash.

Simon Tyler of Chase de Vere, a broker, said: “This is going to create difficulty for many City workers as they often do not know precisely when they will get their bonus payments.”

The middle-class mortgage freeze comes as lenders pull their best deals with unprecedented haste. First Direct’s fixed-rate loan at 4.75% and the Coop’s tracker at 5.24% are no longer available and have been replaced with a 4.99% two-year fix from HSBC and Britannia’s two-year tracker at 5.85%.

Alliance & Leicester is raising rates on fixes and trackers by up to 0.15 points.

Direct Line, which has scrapped all deals except for a two-year fix, upped its rate by 0.74 points from 5.95% to 6.69% last week, adding £2,202 to the cost of a £200,000 loan.

However, Bristol & West has a five-year fix for the self-employed at 7.79% with a £999 fee and there is a two-year fixed deal from First National for the self-employed with a 10% deposit at 8.39%.

Top tips on securing a deal

WITH the mortgage meltdown getting worse, we offer some tips on finding a good deal.

1 Book now Borrowers coming to the end of cheap mortgage deals within the next six months should start looking now. You can generally reserve a rate between three and six months in advance.

2 Check your credit rating Don’t assume your credit file is clean. You could have a black mark against you for a misdemeanour years ago, including just one missed payment.

3 Once you have found a good deal, act fast There is almost no notice from lenders before a deal is withdrawn from the market at the moment.

4 Apply online The process will generally be quicker online – although this is not normally an option for buy-to-let applications.

5 Make sure you can prove your self-employed income If you have one full year’s accounts and have been trading for 18 months you should be able to get a mainstream loan. Anything less and you will have to go for a higher self-cert deal.

6 Fix your offset Offset loans are handy for those who keep large savings balances as you can use the interest earned on deposits to offset the interest you are charged on your mortgage.

However, steer clear of variable rate offsets as the lender can increase the rate at any time, as NatWest borrowers discovered last week. The best offset fix is from Leeds building society at 6.45% for three years.

7 Build up a deposit If you have a deposit of just 5% and you are a first-time buyer, the best rate on offer is from Cheshire at 5.49%. Those coming up to remortgage should check if they have enough equity in their home to secure a new deal.

Speak to an estate agent about improving the value of your property.

8 Avoid the SVR – even if you don’t know what to do As fixed-rate and tracker deals become more expensive, borrowers with small loans may gravitate towards the SVR as a “wait-and-see” option. Lenders can increase their SVRs at will. Last week, Skipton building society added a £799 fee to its standard variable rate deal offer at 6.7% for new borrowers, which expires tomorrow.

9 Get a tracker if you want to wait and see A better wait-and-see option is a tracker with no early redemption charges, such as HSBC’s at 5.63% for those with a 10% deposit. Some tracker deals also allow you to drop the tracker and lock in to a fix. Nationwide and Scarborough offer trackers with a drop-lock option, that allows borrowers to switch to any fixed rates offered by the lenders in future.

10 Explore all the options If you have missed credit-card or mortgage payments or have acquired a county court judgment, your options are limited as this will affect your credit score according to the tests used by most mainstream lenders.

However, brokers might be able to help so you don’t have to be classed as sub-prime.

Halifrax cashes in

HALIFAX, Britain’s biggest lender, admitted last week that the credit crunch will boost its margins at the expense of customers.

Finance chief Mike Ellis said profit margins at its consumer division should rise in the coming years as it passes on higher funding costs to customers. Last week there was evidence this is already happening. The bank increased the rate on its two-year tracker for some borrowers with a 10% deposit from 6.39% to 6.74% — a 0.35-point increase.

However, the cost of funds in the money markets, also known as Libor, is 6% — so Halifax is charging an extra 0.74 points on top, or £1,480 a year on a £200,000 home loan. Two-year tracker deals on new purchases at Halifax are 1.75 points higher than the last time Libor was at 6%, in July 2007.