UPDATE 3-First Direct, Co-op withdraw mortgage deals

(Adds withdrawal of Co-operative mortgage offer)

By Chris Wills

LONDON, April 2 (Reuters) - British lenders First Direct and The Co-operative Bank have withdrawn mortgage offers for new customers after being swamped with demand as rivals have raised rates due to the credit crunch.

Both retreats are expected to be temporary, but are a further blow for millions of home owners who will need to refinance mortgages this year, as thousands of cheaper mortgage offers have already been withdrawn.

It comes as mortgage approvals languished near decade lows in February, according to Bank of England data.

"These are really strange times, I don't think the mortgage industry has ever witnessed anything like this," said Andrew Hagger, a spokesman for Moneyfacts, which provides online comparisons data on mortgages.

Independent broker Savills Private Finance expects lenders to raise mortgage rates further in coming months to deter consumers, because their own access to funds is restricted.

"Things are getting more serious all the time," said Savills director Melanie Bien.

"The worrying thing is even if there is a base rate reduction (by the Bank of England) it won't have that much of an impact because the link between the base rate and the mortgage rate has been all but severed because of a lack of liquidity in the market," she said by phone.