First Direct stops new mortgages

By Chris Wills

LONDON (Reuters) - First Direct has withdrawn mortgages for new customers to clear a backlog after people flocked to its relatively cheap deals as other lenders raised rates due to the credit crunch.

Although the suspension is expected to be temporary, it is another blow for consumer choice which has suffered dramatically in recent weeks as banks have withdrawn thousands of cheaper mortgage offers.

It comes as mortgage approvals languished near decade lows in February, according to Bank of England data.

"These are really strange times, I don't think the mortgage industry has ever witnessed anything like this," said Andrew Hagger, a spokesman for Moneyfacts, which provides online comparisons data on mortgages.

Independent broker Savills Private Finance expects lenders to raise mortgage rates further in coming months to deter consumers, because their own access to funds is restricted.

"Things are getting more serious all the time," said Savills director Melanie Bien.

"The worrying thing is even if there is a base rate reduction (by the Bank of England) it won't have that much of an impact because the link between the base rate and the mortgage rate has been all but severed because of a lack of liquidity in the market," she said by phone.

First Direct would not give figures on how many mortgages it arranges, but is believed to handle above 1.5 percent of the total UK mortgage market, according to Ray Boulger, senior technical manager at online mortgage lender Charcol.