Co-op puts two-year deals on hold after First Direct suspends entire range

More banks are to withdraw mortgage deals following First Direct's decision yesterday to suspend its entire range to borrowers that are not already customers.

The Co-operative Bank is suspending its two-year deals while US investment bank Lehman Brothers will withdraw from the UK mortgage market today.

The Co-op said that the measure is temporary one, as did First Direct, which was forced to take action after an unprecedented flood of applications.

First Direct, which is part of HSBC, said that it would otherwise have had to raise interest rates to discourage applications, which have been five times its usual levels.

A steady reduction in mortgage products on the market has been putting demand pressure on lenders with the most competitive deals, forcing them in turn to withdraw or reprice deals.

Mortgage products on offer have fallen by 20% over the last week alone, according to financial information group Moneyfacts. Since the start of March 2,932 deals have been withdrawn, leaving just 4,794 on the market.

With the credit crunch making it increasingly hard for lenders to raise finance, the mortgage market is widely expected to tighten further.

When the Nationwide building society raised its interest rates significantly last week on new fixed and tracker deals it cited not only the increased cost of finance but also a need to deter demand.

The Bath and Earl Shilton building societies both withdrew their range from non-customers last month.