Nationwide Building Society, the country's second-largest mortgage lender, is prepared to let its share of the home loan market shrink as it is battered by the credit crunch.
Britain's biggest building society, which writes one in every 10 mortgages, yesterday lifted the deposit homeowners need to qualify for its best rates from a tenth to a quarter of the property's value because "the cost of funding is higher and the housing market is cooling".
A spokesman confirmed the move may cost customers. "What we would like to do is continue to lend strongly but with an eye on quality. If the only way of doing that it is to accept a smaller market share, then we will."
Nationwide has seen its share of the market eroded by fierce competition - writing just 5.7pc of new mortgages in the first half - but because a smaller proportion of its funding is from the wholesale markets than the banks, it was expected to be a winner in the credit crunch. It has just completed a merger with Portman intended to position it to take on Britain's banks.
Nationwide funds roughly £48bn of its £166bn book of assets in the money markets, and the rest with customer deposits. The cost of wholesale funding has soared. Last week Alliance & Leicester, which taps the wholesale markets for £34.8bn, revealed its cost of funding had risen by £150m.
Nationwide confirmed costs had risen significantly but declined to disclose a figure, only saying the change in its mortgage policy would "not get near" to covering the increased funding costs.
Analysts said the extra costs would be significantly less than at A&L because the bank is in a weaker position.
Industry specialists claimed Nationwide's move demonstrated a sea change in the mortgage market. One said: "The growing view among chief executives is that the current market conditions are long-run, not temporary. [They] are preparing their ships for stormy weather."
He said less risky mortgage assets will be cheaper to use as collateral against which to raise funds amid fears of falling house prices.
Matthew Carter, Nationwide director of mortgages, said: "We have to adapt to changes in market conditions."
Julian Skan at Accenture warned that "matching cost to value has implications for financial exclusion" as less attractive customers are priced out of the market.