Just days after scooping a multi-billion pound bail-out from the Government aimed at kick-starting the housing market, a banking giant has blocked borrowers from accessing cheaper deals.

Lloyds TSB was among a host of lenders involved in a £37 billion Government rescue package which aimed to restore homebuyers faith by offering a raft of new mortgage deals.

However, the lender has now created new rules which prevent borrowers with high loans to value from opting to pay just the interest on their mortgages.

Only those Lloyds borrowers with mortgages worth less than 75% of the value of their homes are now able to switch to interest-only deals, where they do not also repay the capital on the home loan.

But Lloyds, which also lends under the Cheltenham & Gloucester mortgage brand, stressed the option was still available to those borrowers who flag up difficulty with repayments.

It also pointed out that it was a responsible move to help prevent homeowners from falling into negative equity as house prices decline.

Lloyds also this week pulled another 90% mortgage deal in line with similar moves across the entire sector to restrict borrowing for those with small deposits.

The number of different mortgage deals available for people with only a 5% deposit has dived by nearly 50% during the past week, figures showed.

There are now just 40 home loans available for people borrowing up to 95% of their home's value, down from 75 just a week ago - a 47% fall.

A number of lenders already had tough restrictions on their interest-only mortgages, such as Nationwide Building Society, which restricts it to a cap of 66%.

Lloyds said it took the step in light of dropping house prices to help protect borrowers from falling into negative equity, as those paying off just the interest do not reduce the original loan as with a traditional repayment deal.

"This change has been made to encourage customers to continue to protect the equity in their home in the falling house price environment," said Lloyds.

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