Mortgage hunters take another hit

Updated 22.44 Wed Apr 02 2008

Keywords: mortgage

The crisis over mortgages is deepening after First Direct announced it will no longer offer mortgages to new customers and two other lenders raised their rates for existing ones.

It means buyers searching for a new mortgage will find their options increasingly limited as rates rise and the number of products on the market is reduced.

The announcement from NatWest and Rotal Bank of Scotland and Kent Reliance is thought to be the first time lenders have raised rates for existing borrowers since last year

The internet and telephone bank said it was temporarily withdrawing mortgages after receiving five times the usual volume of applications in recent weeks. It added that it had made the move to clear the backlog after an "unprecedented" level of business, rather than raise its rates in a bid to discourage borrowers.

At the same time, NatWest and Royal Bank of Scotland - which are part of the same group - and Kent Reliance Building Society have become the first lenders this year to raise their variable mortgage rates for existing customers.

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 in a bid to beat the credit crunch.

But the announcement from NatWest and Royal Bank of Scotland and Kent Reliance is thought to be the first time lenders have raised rates for existing borrowers since last year.

First Direct chief executive Chris Pilling said: "The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from non-customers."

He added: "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."

Meanwhile, the number of mortgages approved for people buying a home has fallen by nearly 40 per cent during the past year.

Just 73,000 home loans were approved for people moving house during February, the second lowest since July 1995 after mortgage approvals dipped to 72,000 in December.