IIB BANK has announced that it is increasing some of its mortgage rates and withdrawing its one-year fixed-rate mortgage.

It also said yesterday that it would no longer offer free legal fees for mortgage switchers, blaming the higher cost of funding and the financial market turmoil.

The bank, which has 12 per cent of the mortgage market, is increasing its two-year, three-year and five-year fixed rates by 0.2 of a percentage point and its tracker rates by 0.15 of 1 per cent on most products and by 0.2 of 1 per cent on one product.

It is withdrawing fixed-rate mortgages on residential investments where the loan-to-value ratio - the percentage of a property's value the bank willing to lend - is higher than 80 per cent.

In a letter to brokers, IIB said: "It is clear that the current market volatility in the world's money markets is continuing to have an adverse effect on funds."

The bank said the changes would come into effect on May 6th and that all cases approved on existing rates by that date would be honoured.

Several lenders have tightened lending rules and increased mortgage rates, passing on the higher cost of bank funding to customers.

The cost of money has spiralled as the wholesale markets remain expensive for lenders.

The three-month Euribor inter-bank rate, the rate at which banks lend money to each other, has continued to increase since January. Yesterday, it rose to 4.82 per cent, the highest rate since December 19th. This compared to 4.2 per cent last July, before the global financial crisis began to bite.

Bank of Scotland (Ireland), Ulster Bank and its subsidiary, First Active, have increased rates.

The State's largest mortgage lender, Permanent TSB, increased its tracker mortgage rate last week while, on Monday, AIB withdrew its one-year discount tracker rate for new business, though it has not changed its standard tracker rate.

Other lenders are expected to follow suit in the coming days.