Halifax, the UK's biggest mortgage lender, is expected to pull its current home loan deals from the market in a matter of days, after brokers put the bank on "withdrawal watch".

It is understood that Halifax has been inundated with applications for mortgages from homeowners who are desperately chasing the few remaining good value deals left on the market. One source said that Halifax's mortgage sales team is currently selling 40 per cent more than their target.

It also emerged today that The Co-operative Bank has withdrawn some of its mortgage products, particularly its two-year home loans, due to high demand. At the same time, Lehman Brothers, the investment bank, has stopped granting new mortgages in the UK.

Yesterday First Direct, the internet banking arm of HSBC, said it was withdrawing from the mortgage market, following a surge in demand for its best-buy fixed rate mortgage deals. First Direct had topped the best-buy table for a two-year fixed rate, the most popular type of mortgage, for the past two months.

Melanie Bien, director of independent mortgage broker Savills Private Finance, said: "With First Direct, which was attracting unprecedented levels of business, pulling out of the market for new mortgage customers, other lenders will continue to monitor their offerings. If they feel that service is slipping, they will increase rates or withdraw from the market temporarily. Halifax has told brokers that it is experiencing high volumes of business - much more than it would normally expect or can cope with."

Mortgage lenders have been steadily withdrawing from the market, restricting their criteria and increasing rates over recent weeks in response to funding shortages caused by the credit squeeze, as well as the threat of a downturn in property prices. However lenders that survived the first round of changes are now so overwhelmed by demand that they too are having to remove deals.

Bank of Ireland withdrew the majority of its fixed rate deals on Monday, while RBS, Bank of Scotland, Cheltenham & Gloucester and Nationwide are among those who have increased rates on some deals over recent days to reduce demand.

Halifax is currently offering a two-year fixed rate of 5.99 per cent, a two-year tracker rate of 6.20 per cent and a three-year fixed. Brokers are hurrying through applications for customers in case these rates are pulled.