More mortgage deals are withdrawn

More banks have withdrawn mortgage deals following First Direct's decision to suspend its entire range.

The bank, which is part of HSBC, said the withdrawal was to allow it to cope with the unprecedented demand for its range of mortgages.

The Co-operative Bank appears to have had the same problems and has withdrawn its two-year mortgage deals.

The US investment bank Lehman Brothers is also withdrawing from the UK mortgage market.

Its Southern Pacific and Preferred Mortgages will stop taking new business at the end of the day.

First Direct stressed that it is only temporarily ending mortgage offers to people who are not already its customers.

Many providers have withdrawn mortgages or raised interest rates this year, leaving some smaller banks and building societies unable to cope with demand.

First Direct says applications have been five times its usual levels.

"The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from people who are not existing customers," said First Direct's CEO.

We want to be back in the market as soon as possible

"Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog."

According to Moneyfacts, mortgage products on offer have fallen by 20% over the last week.

As a result of the continuing credit crisis, the interest rates at which banks lend money to each other are, unusually, far above the Bank of England's base lending rate.

And the banks are finding it much more difficult to raise money from credit markets for mortgage-backed securities.

That has made it uneconomic for some institutions to carry on offering mortgages and thousands of products have been withdrawn already this year.

Figures on Wednesday showed the number of new mortgages approved for house purchase fell slightly in February to just 73,000. This figure was 39% lower than the same month a year earlier.

First Direct is the first bank to withdraw its entire range to non-customers, although the Bath and Earl Shilton building societies took the same step last month.

Last week, the Nationwide building society, one of the UK's biggest mortgage lenders, raised its interest rates significantly on new fixed and tracker deals.

It said this was both because of the increased cost of raising the funds and the need to cope with demand.

Many other lenders are demanding bigger deposits with mortgages of 100% or more of a property's value having all but disappeared.

Although the number of first-time buyers and other house movers has been falling, more than a million people will see their short term fixed rate deals expire this year.

As a result, they are starting to look around to find a better deal from other lenders, as well as their existing one.

The situation has been made worse by the near-collapse of the Northern Rock.

What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards

What was the UK's busiest lender last year has now withdrawn from the market, leaving many of its customers looking for another lender.

First Direct had taken a drastic step to cope with demand.

From having over 25,000 mortgage products on my sourcing system about 6 months ago, there are now under 7,000 !