Northern Rock has increased the interest on its fixed-rate mortgages despite calls for banks to pass on lower rates.
The nationalised bank has raised the rate of interest on its best deals, by up to 0.3 per cent, despite a sharp cut in the base rate earlier this month.
The bank's most competitive deal, a one-year fixed rate deal, has jumped from 3.99 per cent to 4.19 per cent.
The government and the Bank of England has urged banks to cut lending rates in line with the recent base rate reduction of 1.5 per cent, to three per cent.
Although Northern Rock has reduced its standard variable rate (SVR) in line with the change to 5.84 per cent, this is not available to new Northern Rock applicants, and is only available to existing customers.
Other lenders have responded to the base rate cut by slashing their own rates, including Woolwich, the lending arm of Barclays, which has cut the rates on almost a third of its fixed rate mortgages by up to 0.7 per cent.
Northern Rock said has to operate within the rules it set itself when the bank was nationalised.
"We have a self-imposed competitive framework and that includes not being a market leader in certain categories," a spokesperson for the bank said.
The bank added not all products have been changed and tracker, buy-to-let and lifetime products remain the same.
As part of its conditions for receiving taxpayers' money, Northern Rock had to promise not to use its position as a government-backed bank to its advantage and cannot be a market leader.
When asked about why Northern Rock had increased its mortgage rates in parliament today, Alistair Darling reaffirmed the Novocastrian bank was being run at arm's length and the government could not interfere with the day-to-day running of the lender.