LONDON (Reuters) - Britain's biggest mortgage lender Halifax is to raise mortgage rates on Monday and introduce a new pricing band that will increase costs for customers with small deposits.

Halifax's parent HBOS said on Friday the new pricing will raise the minimum deposit required to 5 percent from 3 percent, but will offer cheaper rates for more "prudent" customers with a deposit of over 25 percent.

HBOS declined to say how much rates will rise, but a spokesman said: "There is some pricing upwards but it's very much in line with the market."

Halifax is easily the biggest mortgage provider in Britain and its parent HBOS provides a total of one in five home loans.

Thousands of mortgage products have been withdrawn across the industry in Britain in recent months, as banks cut their lending amid a rise in funding costs and a slowdown in the housing market and economy.

Rivals including First Direct, part of HSBC, have this week withdrawn mortgage offers after being swamped with demand as up to 3 million homeowners are expected to need to switch to new fixed rate or tracker deals this year.

Halifax said its mortgage product range will now include three loan-to-value (LTV) bands: 0-75 percent, 75-90 percent and 90-95 percent, replacing previous bands of 0-90 percent and 90-97 percent.

Halifax said safer borrowers will benefit and a new branch-based customer with a deposit of more than 25 percent typically will pay 0.1 percent less. But customers with a deposit of 10 to 25 percent will on average pay 0.14 percent more.

The lender said it will also launch on Monday a number of new products targeting first time buyers.