Big name quits new mortgage market

BRITAIN is facing a "mortgage famine", experts warned last night, after a major lender announced it was pulling out of the market for new home loans in the wake of the global credit crunch.

First Direct, the internet and telephone bank, said it was temporarily withdrawing its range after receiving five times the usual volume of applications in recent weeks.

And The Council of Mortgage Lenders (CML) and the Money Advice Trust charity yesterday launched a leaflet offering advice for existing borrowers on how to cope with the potential "payment shock" of moving on to a more expensive rate.

First Direct, owned by HSBC, said it was taking the "drastic" step after being overwhelmed with applications following recent moves by rival lenders, and added that it would resume offering home loans to non-customers when it had cleared the backlog. The bank stressed that the move to temporarily withdraw mortgages for sale was "not a funding issue" but was intended to allow them to get back to normal levels of customer service.

Chris Pilling, First Direct's chief executive, said: "We've seen unprecedented demand for our mortgages since January thanks to our highly competitive pricing and the decision of other lenders to raise rates. As a result, we're currently seeing applications running at five times our normal volumes."

Mr Pilling added: "The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications. 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.

The group will continue to offer mortgages to existing customers, even if they do not currently have their home loan with it.

Meanwhile, NatWest and its owner, Royal Bank of Scotland, announced they were increasing the rate on their variable rate offset mortgage from 6.2 per cent to 6.45 per cent from today.

Kent Reliance Building Society yesterday also raised its standard variable rate for new and existing customers by 0.25 per cent to 7.59 per cent.

A raft of lenders, including giants such as Nationwide Building Society and Cheltenham & Gloucester, have increased their mortgage rates for new borrowers in recent days due to the ongoing high costs of funding as a result of the credit crunch.

But yesterday's announcement is thought to be the first time lenders have raised rates for existing borrowers since last year.

Standard Life Bank also announced yesterday that it was increasing its mortgage rates for new borrowers for the second time in two weeks.

But the Co-operative Bank bucked the trend, reducing the interest charged on its five- and ten-year fixed rates by 0.3 per cent.

Joanna Elson, chief executive of the Money Advice Trust, said: "We have already seen a 16 per cent increase between 2007 and 2008 in clients contacting National Debtline for advice regarding mortgage and secured loan arrears, and we fear that people really are starting to struggle with their mortgage payments as credit becomes more expensive to service. Our experience suggests that if you do get into difficultly, seeking free independent advice as soon as possible is the best option to help you sort out your problems."

Meanwhile, a survey published yesterday found debt the biggest fear among young people in Britain. Nearly half (48 per cent ) polled said it was one of their biggest concerns, reflecting the growing significance of tuition fees and student loans in the lives of young people. And 40 per cent of those questioned named unemployment as one of their concerns and 38 per cent raised fears of violent crime.