More UK banks are being forced to tighten their belts following the fallout from bad investing in the US subprime mortgage market and fear that lax lending standards could have brought problems elsewhere – including the UK. The warning came as Bank of England figures showed the number of new mortgages being approved had fallen to the lowest level since records began in 1999.

This means the relatively easy credit of the past five years is drying up and borrowers are being scrutinized much more closely. First-time buyers and overstretched borrowers have been warned easy financing has ended as lenders adopt a cautious approach and slash the availability of 100% loans.

The credit crunch in the US and UK has made it harder for banks to find the money to lend. Because there is less money available, there is more competition from borrowers - and less need for lenders to offer cut-price deals.

The cutbacks are hitting first-time buyers and could lead to rate shocks for those with high percentage mortgages compared to their property value who will struggle to remortgage at the end of initial deal periods. Homeowners with these loans rely on being able to take out a new deal when the current one ends to avoid seeing monthly payments rise sharply.

Over recent months a number of mortgage lenders have begun to only offer top deals to those with lower loan to value ratios. The ‘loan to value’ ratio is ratio between the size of the loan you are seeking and the mortgage lender’s valuation of the property. So if you’re borrowing £55,000 on a property valued at £100,000, the LTV is 55% and the lender will feel comfortable you have enough equity in the property for it to be reassured if you stopped making your interest/capital repayments, it could sell your property and recoup the money you owe.

The new-found prudence among mortgage lenders follows a flood of easy-money mortgages over recent years, as banks and building societies loosened borrowing criteria.

Financial information specialist Moneyfacts says 10 lenders out of the 32 that offered them have stopped selling 100% loan-to-value mortgages typically targeted at first time buyers since June 2007. Meanwhile, 11 lenders have reduced their maximum borrowing since December.

The impact of a lender increasing their loan deposit requirement from 5% to 10% means that a first-time buyer would need £13,000 to purchase a £130,000 property rather than £6,500 previously.

Tougher borrowing rules have contributed to the cooling of the property market, by hampering the chances of first-time buyers purchasing a home without a deposit.

It is not hard to understand why this pattern has emerged. With mounting evidence that housing prices are cooling, combined with the increasing number of borrowers facing debt problems, it is not welcome news for those consumers with only a small amount of equity.

This more cautious approach by lenders starting to reduce their exposure to property price fluctuations shows they have a real concern over the future of the UK housing market. A case of negative equity (you are in negative equity if your property is worth less than the amount you still owe to your mortgage lender) is bad news for both the borrower and the lender.

Should this conservative approach continue, borrowers who come to the end of a deal but find themselves still borrowing at a high loan-to-value ratio could find the choice of deals limited, or may be forced to pay a much higher price.