Speculation had been building over the past week regarding the future of the US investment house in the UK, with many commentators believing that a decision was imminent.
Morgan Stanley confirmed in a statement that it would be cutting back its lending operations in America, while it would be terminating its UK business links.
Overall, 1,000 jobs could go on both sides of the Atlantic.
The statement said: “Morgan Stanley announced today that it will scale back its residential mortgage operations in the US in response to the continued deterioration of the mortgage markets.
"In addition, the firm will discontinue its UK-based residential mortgage lending business, Advantage Home Loans. Approximately 1,000 employees in the US and the UK will be affected by this restructuring.
“Morgan Stanley will continue to service mortgage loans in the U.S. through its Saxon Mortgage Services, Inc. platform, based in Fort Worth, Texas.
"In addition, the Firm will still offer residential mortgages to its retail brokerage clients through Morgan Stanley Credit Corporation, preserving a successful partnership between the Institutional Securities business and Global Wealth Management.
Anthony Meola, chief operating officer of the U.S. Residential Business at Morgan Stanley, said: "Given the continued dislocation in the mortgage markets, we have restructured our residential mortgage business to ensure we are appropriately positioned for the environment going forward."
All Advantage products have subsequently been pulled, with advisers required to submit deals by end of play on Friday.
All offers will still be honoured if completed within 90 days, although no extension will be available.
