The firm had exited the second charge market earlier this week but insisted at the time it was still open for first charge business.
However, a source told Mortgage Introducer that the firm had withdrawn from all areas.
The source said: “They have pulled out of all residential lending. Its sales staff have been let go after being put on notice earlier and a couple have come to me asking if I have jobs going.
"They also aren’t honouring pipeline business as we have had brokers come to us to try and place business.”
LSM confirmed its decision to reduce lending volumes by putting an immediate hold on the acceptance of new applications, with the focus placed on “clearing the backlog” of existing ones.
An LSM spokesperson said: "Following our announcement on 31 December, we have decided to reduce the level of mortgage lending.
"Due to current high levels of business, we will not be taking any new first charge applications until the existing pipeline has cleared."
The firm has been hit with problems already this year after admitting it had put a ‘limited number’ of staff on consultation.
Meanwhile, its parent company London Scottish Bank also fell foul of the Financial Services Authority (FSA) after it failed to meet its capital adequacy requirements under Basel II regulation. It announced on 31 December it needed to pull a £13 million shortfall.
