First Direct withdraws mortgages
First Direct has temporarily stopped offering any of its mortgages to people who are not already its customers.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.
Many providers have withdrawn mortgages or raised interest rates this year, leaving some smaller banks and building societies unable to cope with demand.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.
Temporary
"The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from non-customers," said First Direct chief executive Chris Pilling.
"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."
First Direct, which is a relatively small lender, stressed that the move was temporary and that it had no problem raising funds to lend.
"We want to be back in the market as soon as possible," said Mr Pilling.
Demand
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.
That has made it uneconomic for some institutions to carry on offering mortgages and thousands of products have been withdrawn already this year.
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.
More remortgaging
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What was the UK's busiest lender last year has now withdrawn from the market, leaving many of its customers looking for another lender.
David Hollingworth, of the mortgage brokers London and Country, said First Direct had taken a drastic step to cope with demand.
"It's been topping the best-buy tables for quite some time now. As a consequence, they have been clearly attracting a lot of interest from borrowers," he said.
"What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards. That leaves another lender exposed to being very competitive and they receive a deluge of new business.
"That's what has been driving up rates in recent months," he added.
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