Barclays yesterday closed its controversial Firstplus loan subsidiary to new business and cut more than three-quarters of the company's staff after a 40% slump in demand for its top-up mortgages this year.

But a consumer website fool.co.uk says that the ongoing credit crunch has caused a dramatic reduction in mortgage and other secured lending. Inter-bank lending has all but vanished, and tighter lending criteria and higher interest rates have pushed FirstPlus’s business model to the limit. Thus, with house prices expected to fall much further, the group has decided to stop lending.

According to the website, FirstPlus will continue to service its existing 128,000 secured loans, it will stop lending to new customers with effect from 9 August. Although this will secure 130 jobs, 300 employees are at risk, which will be a blow for the city of Cardiff, the home of FirstPlus.

FirstPlus isn’t the first lender to exit the market for secured loans, but it is the largest. Additionally, the company specialises in lending money to borrowers with less-than-perfect credit records. These customers usually have problems borrowing from mainstream lenders, so they are forced to pay the higher interest rates charged by FirstPlus and its rivals.

But the website says that the problems in the secured loans market are making an impact across the financial services industry. Yesterday, another consumer website, MoneySupermarket warned that FirstPlus’s exit would lower its revenue by £7 million a year. Its shares promptly fell by almost a third (32%) to an all-time low of 59.5p.