Northern Rock is to lift the rates on its range of fixed-term mortgages for borrowers with patchy credit histories.
Northern Rock's earnings will not be affected by a sub-prime crisis
From 29 August, sub-prime home loans at the lender will cost up to 1.25% more. Loans that track the Bank of England's base rate will no longer be available.
The move comes as home repossessions in the UK surge, reflecting the effect of sharp interest rate rises.
The bank said it was not at risk from sub-prime lending, as it passes those loans to an arm of Lehman Brothers.
The Newcastle-based firm said such mortgages were transferred to SPML, a subsidiary of the investment bank, Lehman Brothers, which administered them for a fee.
It added that the decision to make home loans more expensive for would-be house buyers on low incomes or with bad credit was taken in agreement with SPML.
The Northern Rock's core mortgage range will not be affected.
And despite concerns over the recent liquidity crunch in the banking system, mainstream borrowers with good credit records are, in some cases, finding new mortgage deals a bit cheaper.
Several banks have this week announced small reductions in the interest charged on their fixed-rate deals, among them the Halifax, RBS and Britannia building society.
The Nationwide building society has cut its fixed rates by between 0.04 and 0.12 percentage points on 10 different offers, with its two-year deal for home movers now costing 5.78% a year.
"Northern Rock is heavily reliant on the wholesale money markets for funding its mortgages, rather than deposits," said Justin Urquhart Stewart, marketing director at Seven Investment Management.
"These have become more expensive lately, which is squeezing profit margins at the company."
But Northern Rock defended the strength of its financial position.
"It has been a tough time in the credit markets, but we raised a lot of liquidity ahead of this turbulent period," said Brian Giles, communications director at Northern Rock.
Northern Rock has been the worst performer on the FTSE 100 index of leading shares this year, but in the past few days, shares have rallied on talk of a possible takeover.
Analysts see the move as part of a wider-scale retreat from sub-prime mortgages in the UK, as financial institutions insulate themselves against a replication of the crisis that has wiped out billions of dollars of US mortgages.
It is understood the UK sub-prime market is much smaller than the US and much more tightly regulated, but eyes have been keenly trained on the sector in this country for any signs of distress.
Record mortgage defaults in the US and a slump in house prices have made it more difficult for companies and individuals to get credit and whipped up fears worldwide over the outlook for global economic growth.
One UK sub-prime lender, Victoria Mortgages, withdrew its range of loans to future borrowers at the beginning of August.
The company is expected to reintroduce its products by the end of the month after increasing the cost by 2.5%, according to financial website Moneyfacts.
Other lenders, such as GMAC-RFC and Mortgages plc, raised rates on their range this week.