Borrowers who are coming up to remortgage were last week warned that the cost of a typical £200,000 home loan could rise by as much as £600 a year following a week of turmoil among Britain’s banks.

The merger between HBOS, which owns Halifax, previously Britain’s biggest mortgage lender, and the more conservative Lloyds TSB, which owns Cheltenham & Gloucester (C&G), may make it tougher for borrowers to secure home loans.

Meanwhile, the collapse of Lehman Brothers and the rescue of insurance giant AIG, combined with the merger to push up two-year swap rates, which reflects the rate at which banks lend to each other, by more than 0.3 percentage points to 5.5%.

Savills Private Finance, a broker, said it expected lenders to respond with an increase of 30 percentage points on their deals, adding £50 a month or £600 to the cost of an interest-only loan and £35 a month to the cost of a £200,000 repayment loan or £450 over a year.

This would almost wipe out the benefit of recent cuts to the cost of deals that brought the average fix rate down to 6.45% last week from highs of more than 7%.

Commentators also raised fears that a UK “super-bank”, formed from the merger of HBOS and Lloyds TSB, would destroy competition in a shrinking mortgage market and on savings products.

Andrew Hagger of Moneynet, the comparison site, said: “We are waving goodbye to an element of competition in the personal-finance market. Consumers will face a far more limited choice on the back of this merger and the previously announced Abbey takeover of Alliance & Leicester.”

We ask what the deal between HBOS and Lloyds TSB means for consumers:

I’m a borrower. What does the merger mean?

If you are an existing Halifax borrower, you will continue to pay your mortgage to the enlarged group. You will probably notice a difference when you come to remortgage, when brokers say the deals on offer may be less attractive.

Lloyds TSB currently has lower rates at 5.49% with a £1,995 fee for a two-year fix for borrowers with a 25% deposit compared with Halifax’s 5.72% with a £1,499 fee.

Borrowers who take out a mortgage with C&G are restricted to a £2.5m maximum loan, compared with £7m from Halifax.

Brokers said C&G has stricter lending criteria overall, such as demanding proof of income over a longer period. Aaron Strutt, of Chase de Vere Mortgage Management, said: “If banks restrict their lending as a result of this merger we will find ourselves back to where we were at the height of the mortgage freeze earlier this year.”

Are rates likely to go up or down?

The next move in officical interest rates is expected to be down as the Bank of England seeks to boost the flagging economy. However, rates in the wholesale markets, where banks lend to each other, have diverged from economic expectations and have in fact gone up because of last week’s turmoil. Trackers and fixes for new borrowers are therefore expected to go up too, in the short term at least.

With fixed rates for new borrowers expected to rise you should move quickly if you need a mortgage with security. Yorkshire building society's two-year fix at 5.29% for those with a 25% deposit with a £975 fee gives monthly repayments at £1,203 on a £200,000.

However, a base-rate tracker may be a better option if you don’t need the security because once you have taken it out, it will follow any move in Bank rate down. A broker exclusive two-year tracker funded by C&G offers 5.59% for borrowers with a 25% deposit at £1,238 a month with a £1,894 fee.

What about savings?

Rates are expected to get less competitive. HBOS-owned Birmingham Midshires has a significantly better rate on cash Isas at 6% and a one-year fixed-rate bond at 6.7%, compared with Lloyds TSB’s Isa at 4.6% and 5.50% respectively.

I’m a Halifax shareholder. What should I do?

HBOS’s 2m small shareholders will be asked to vote on the proposal, which offers 0.83 of a Lloyds TSB share for every HBOS share, valuing them at 232p, based on the closing price of Lloyds shares on Wednesday.

This is 80% below the high of £11.67 in February 27, 2007 and 68% below the £7.34 at which they floated in June 1997.

Danny Cox, of Hargreaves Lansdown, the Bristol-based financial adviser, said: “HBOS shareholders could see their share price destroyed in the absence of such a deal.”

Play safe with your money

Sarah Graveney, of southwest London, had both her savings and mortgage tied up with Halifax, until she switched most of her cash to HSBC last week.

Her mortgage with Halifax, fixed at 5.45%, expires in March next year. As she has sizeable equity in her home she can book in advance First Direct’s 4.99% mortgage with a £1,499 fee for borrowers with a 20% deposit.

Graveney, 32, moved most of her savings from Halifax's high-interest current account to HSBC last week. She has now opened a HSBC high- interest deposit bond paying 5.75% fixed for a year.

She said: ‘We have now spread our savings around, so we don't have any more than £35,000 with one bank. I didn't feel comfortable leaving it with Halifax.’