The lender had reportedly been experiencing customer demand at a level five times greater than usually seen, putting the mortgage side of the business under intense strain.
Chief executive Chris Pilling said: "The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from non-customers.
"Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog.
Louise Cuming, head of mortgages at moneysupermarket.com, said she was concerned that every new move to stem inflow created a precedent to be followed by others.
"First Direct's move marks dangerous new ground for borrowers and will perhaps be followed by other lenders anxious to manage risk and service," she said.
"With the data first direct holds on existing customers, it is in a strong position to target low-risk clients with a strong credit profile. By switching volumes to its parent company, HSBC, on a slightly higher rate, it is not losing the opportunity entirely while ensuring slightly higher margins."
Pilling said that the lender hoped to re-open its doors to new borrowers as soon as possible.
