'Vicious cycle' for borrowers as more mortgages are withdrawn

The exodus of lenders from the mortgage market shows no sign of letting up, with another 240 fixed and variable rate mortgage products withdrawn last week – taking the total number available to 5,485 – according to financial analysts Moneyfacts.

Only last summer there were nearly 16,000 products for sale. Most mortgages now withdrawn were geared towards first-time buyers or higher-risk borrowers, such as the self-employed. But this gives only part of the picture. Last week, big lenders, including Abbey, Nationwide and Halifax, raised rates on new mortgages or increased the deposit required, affecting many people just looking to remortgage to a better deal.

"There is no sign of what is a vicious cycle for borrowers letting up," said David Hollingworth, of broker London & Country. "One lender raises its rates or deposit qualification; this then makes another lender a best buy; they get inundated with new business, can't cope or decide they do not want to be lending the sums involved and this leads to rates being raised or the product being withdrawn."

Matthew Bullock, chief executive of Norwich and Peterborough building society, said it had taken on new staff to deal with demand from borrowers. But, last week, it finally upped its new mortgage rates. "We had to do this to protect service standards," said Mr Bullock.

The mortgage-market is in turmoil because lenders are spooked by the credit crunch and house-price falls. "They are worried they won't be able to raise enough to fund their mortgage offers and that recent house-price falls could turn into a slump," said Michelle Slade of Moneyfacts.