First Direct stops mortgages to outside customers

First Direct is to temporarily stop selling all mortgage products in an attempt to clear a backlog of customer applications.

Effective from 17:00 April 1st, the HSBC division will suspend all products including its two-year fixed rate offset mortgage (4.95 per cent), from sale to non-First Direct customers.

Existing First Direct customers, whether in possession of an existing mortgage or not, will continue to be able to access the company's existing range of products.

However, the lender will not return to the market until what it is calling an "unprecedented number of applications for its home loans" has been cleared.

"We have 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," explained first direct´s chief executive, Chris Pilling.

"First direct won its reputation for its amazing customer service and our first priority is to ensure we give all our customers the level of service they expect from us."

Katie Tucker, at mortgage broker John Charcol, explained why firms are pulling deals.

"Any lender with a decent rate has been swamped with business, and this week, as the increasing cost of funding the tracker rates showed no signs of abating, lenders were forced to pull out just to catch their breath," she said.

The decision from the internet company First Direct follows a host of other lenders who have also left the mortgage market since the credit crunch began to take a toll on liquidity late last year.

Scottish Widows and Alliance & Leicester both have curtailed their product ranges, while Northern Rock has deliberately been offering unattractive rates to deter lenders.

Ms Tucker continued: “There is also a certain degree of domino effect; if two or more competitive lenders pull out, the others have to pack up shop quick-smart to avoid the stampede.

"Yesterday, Bank of Scotland, Woolwich, BM Solutions, Bank of Ireland, Astra, The Mortgage Business, Lloyds/Cheltenham and Gloucester all replaced their mortgage ranges. Royal Bank of Scotland replaced their market leading 95 per cent with no Higher Loan Charge (HLC) 5.99 per cent tracker, giving two business-hours' notice, with a 6.79 per cent, in a flight from new business.

“With notice like this, borrowers are being caught out by hesitating on their choice, for just one day. If the next best choice is 0.4 per cent higher, that hesitation just cost someone with a £200,000 mortgage, £800 a year.”