Fears over the British property market as more mortgage deals withdrawn

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by Kay Murchie

Internet bank, first direct, announced earlier this week that it has temporarily withdrawn all its mortgage products as it tries to clear a backlog of customer applications.

Alliance & Leicester and Scottish Widows have both curtailed their product ranges and Northern Rock recently set its new mortgage rates at uncompetitive levels, in a conscious effort to drive away new business.

Furthermore, the Co-operative Bank has withdrawn its two-year mortgage deals while Lehman Brothers, the US investment bank, is also withdrawing from the UK mortgage market.

Experts believe there is now a strong possibility that more banks and building societies will increase their interest rates or stop offering new mortgages. It is expected that interest rates will be cut next week but borrowers will not reap the benefits.

Construction has ceased on many new developments raising concerns over the state of the British property market.

A survey from the Chartered Institute of Purchasing and Supply (Cips) has established the construction industry is suffering its worst downturn for over 6 years. Its headline index fell below 50%, which indicates the critical no change level, to 47.2 in March, the first time it has been under 50 since November 2001.

Roy Ayliffe, Cips director, said the residential and commercial sectors suffered the most as they both contracted at the fastest recorded rates since the survey began. Further increases in fuel and metal prices placed extra pressure on firms and pushed their average costs even higher.

The Financial Services Authority (FSA) estimates that 1.4 million homeowners will see their fixed-rate mortgage deals expire this year. As a result, they are starting to look around to find a better deal from other lenders, as well as their existing one. The FSA is spending more than £2 million on an advertising campaign to help people make the right choice.