Bank turns away new mortgage customers

First Direct has announced it is withdrawing its mortgage range from new customers while two other lenders raised their rates for existing ones.

The internet and telephone bank said it was temporarily withdrawing its range from 5pm yesterday after receiving five times the usual volume of applications in recent weeks.

At the same time, NatWest and Royal Bank of Scotland and Kent Reliance Building Society became the first lenders this year to raise their variable mortgage rates for existing customers.

First Direct said the "unprecedented" level of business it was receiving meant it was taking longer to process applications than it would like.

It added that it had decided to withdraw its range from people who were not already customers until it had cleared the backlog, rather than raise its rates in a bid to discourage borrowers.

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

"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.

First Direct, which is part of the HSBC group, has 1.2 million customers and employs 3,400 people.

Meanwhile, NatWest and Royal Bank of Scotland, which are part of the same group, announced they were increasing the rate on their variable rate offset mortgage from 6.2 per cent to 6.45 per cent from yesterday.

Kent Reliance Building Society also raised its standard variable rate for both new and existing customers by 0.25 per cent to 7.59 per cent, while Standard Life Bank announced that it was increasing its mortgage rates for new borrowers for the second time in two weeks.

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.

The three month Libor rate, the rate at which banks lend each other money, is at 6.01 per cent, which experts said was around 0.8 per cent higher than would be expected in a normal market given that interest rates are likely to be cut to 5 per cent either this month or next month.

It is this historically high difference between Libor rates and base rates, which are usually within 0.16 per cent or 0.17 per cent of each other, that is partly responsible for lenders raising their rates.