Take a glance at the best mortgage rates on offer now and it may seem that 2008 has been a fairly benign year for borrowers.

The comparison tables are stuffed with rates of 5 per cent and below. Arrangement fees are cheaper than a year ago and lenders appear to be competing for business.

But beyond the headline rates, lenders are reeling from a tumultuous year that saw mortgage rates hit a 10-year peak before dropping sharply as base interest rates fell to their lowest level for more than 50 years.

It has been a year in which mortgage funding has rapidly dried up – there are now just a third as many mortgages available compared with the beginning of the year – and one that has made it virtually impossible for borrowers unless they have piles of cash and a cast-iron credit rating.

One of the most startling shifts in lending has been the degree to which banks price for risk. A year ago, borrowers could easily take out mortgages at or close to the property value. They now need at least a quarter of the value of their property in cash or equity if they want to avoid paying a huge premium over base rate.

Some of the biggest lenders, including Abbey, Halifax, Cheltenham & Gloucester and Woolwich, have limited their best rates to borrowers with deposits of 40 per cent.

“Nothing ceases to amaze in the mortgage market as we have had one shock after another this year,” says Melanie Bien, director of Savills Private Finance, the broker. “The mortgage landscape now is very different to that of a year ago, with far fewer products available, at lower maximum loan-to-values.”

According to Moneyfacts.co.uk, the total number of mortgages on offer now is around 650, compared with 1,630 at the beginning of this year. Deals that lend up to 100 per cent have all but ceased to exist and, as the outlook for property prices has deteriorated, those for 90 per cent have become scarce. Borrowers who need a high loan-to-value can only take fixed rates and are having to pay more than they were a year ago – even though the Bank of England has slashed interest rates.

As the year draws to a close, existing borrowers on tracker mortgages could be paying less than 2 per cent, while rates for first-time buyers with small deposits are as high as 7 per cent.

This year, banks have tightened the screws on their lending policies. Borrowers, even the highest of earners, have been rejected for minor discrepancies such as forgetting to pay their mobile phone bill on time or going overdrawn on their bank account. Banks have been refusing to accept borrowers with variable incomes, such as those who rely on bonuses, and have even been excluding borrowers on the basis of working for a company that could be exposed to the financial downturn.

“Criteria are tighter than ever, as falling house prices and the threat of negative equity discourages lenders from offering high loan-to-value deals,” says Bien.

The dramatic changes in the market were unforeseen a year ago, even though there was already a squeeze on credit. “All the forecasts were out of whack,” says Ray Boulger at John Charcol, the broker. “By this time last year, there was a sense that the credit crunch was easing.” But in the new year conditions took a turn for the worse. “Instead of the market beginning to improve, it deteriorated very badly,” explains Boulger.

Banks began to restrict their lending and by March, new rates were being withdrawn just days after being launched. Many borrowers were left scrambling to find a mortgage they could afford as lenders repriced.

Rates eased over the summer as conditions in the money markets improved, but the recovery was brought to an abrupt halt when Lehman Brothers collapsed. This and other major crises – including the takeover of HBOS, the UK’s largest mortgage lender, by Lloyds TSB, and the the £37bn recapitalisation of other major banks – triggered a huge loss of confidence.

So the year ends with fewer borrowers qualifying for the best mortgages, many first-time buyers still shut out of the market in spite of large falls in property prices – and thousands of borrowers stuck on existing mortgages, as their loan-to-value has risen above the parameters of the best new rates.