Royal Bank of Scotland subsidiary Direct Line is the first lender to pull out of the mortgage market temporarily in the run-up to mortgage regulation.
Direct Life has been forced to stop trading because its IT system is unable to deal with an FSA requirement that it lay out key facts illustrations in the regulator's standard format.
The FSA wants KFIs set out uniformly so that easy comparisons between lend-ers can be made, with new rules coming into effect from M-Day.
RBS says none of its other mortgage subsidiaries would be following suit.
Direct Line follows Sainsbury's Bank which pulled out of the mortgage market in July due to issues with the FSA over the portability of its fixed rates.
Direct Line PR manager Lesley Ferguson says: “It seemed unfair for a customer to start their mortgage on our old computer system and then to change it soon afterwards. We thought it was more prudent to call a temporary pause, clear the pipe-line and then be in a position to offer customers our new system come M-Day.”
London and Country mortgage consultant David Holl-ingworth says: “It is a big decision for any lender to close their books to new business. A bigger ending company would not be able to do it but if they are having computer problems and as mortgages are not such a large part of Direct Line's business, it is probably the sensible thing to do.”