UK lenders have withdrawn 40% of their mortgage deals in the past three months, according to the financial information company Moneyfacts. The move follows a shock rise in the cost of living which is widely expected to lead to higher interest rates.

BBC news notes the collapse of the market for sub-prime mortgages, with 54% of those policies being taken off the shelves. The increased risk has led to lenders becoming increasingly cautious.

The inflation of house prices has led to this cautious approach in the mortgage market according to BBC news. Lenders are now cautious about lending large sums of money to people, particularly those with suspect credit histories, if there is any chance that the value of their houses might fall at any time in the next few years.

The recent Northern Rock crisis has had a direct effect on mortgages as lenders have found it difficult to borrow their funds in the financial markets to lend on as home loans. This has especially been the case for sub-prime buy-to-let mortgages, where the number of deals available has dropped by 72 per cent since last July. The Alliance and Leicester bank and Skipton, Kent Reliance, Newcastle and Newbury building societies have all withdrawn a number of fixed-rate deals also.

Some argue that banks and building societies are withdrawing many of their fixed rate mortgage deals as a result of the credit crunch and its increased strain on lenders. Scottish Widows recently gave mortgage brokers only 10 minutes' notice before it withdrew the bulk of its mortgage offers. This late withdrawing of offers is the latest example of how the credit crunch is hitting many of Britain's 11.8 million mortgage holders.

Miss Bien, director at Savills Private Finance, has said: ‘Borrowers need to understand that deals are being pulled with very short notice so they need to move quickly to secure a rate. If they dither - even by 'only' a few hours - they should be prepared to be disappointed.’

Scottish Widows is not the only borrower to pull its deals suddenly. Cheltenham & Gloucester, the third largest lender, pulled all its buy-to-let exclusive deals with brokers on Friday night. Mortgage Express, part of Bradford & Bingley, recently pulled all of its 100 per cent mortgages as well as many of its buy-to-let deals.
Besides this withdrawal, lenders appear to be changing in reaction to the current climate. Ray Boulger, at the mortgage broker John Charcol, said that it was ‘hard to keep up at the speed at which lenders are changing their prices and criteria. It is accelerating all the time’.

He added, ‘Putting prices up will deter people at first but the banks are leap-frogging each other - as one raises the rate so does another. So that fails to reduce demand and they have to change criteria so that some people won't be able to get a mortgage.’

The lack of mortgages available, especially for those with a poor credit history, is expected to cause repossessions to soar this year, from 27,000 last year to about 45,000.According to Moneyfacts, the personal finance website, there are 6,186 mortgages left in the market, less than half the number available last August.