Banks reluctant to cut rates

The biggest player in the market, Halifax, said on Friday it would cut its standard variable rate by just 0.1%.

But Nationwide, HSBC and other major lenders said they were still reviewing their rates and would make a decision in due course.

" The dramatic cut in interest rates announced by the Bank of England could have a damaging long-term effect on the housing market "

Lenders normally adjust their rates within hours of the Bank of England's announcement.

Their caution reflects uncertainty over how stock markets are reacting to the Bank's surprise cut of a quarter of one percentage point, which takes the base rate to 3.75%.

Some lenders may be tempted to use cheaper borrowing costs to stem losses, if stocks continue to fall.

There is fierce competition in the mortgage market and lenders are also likely to closely monitor the moves of their industry peers.

Market watching

The Halifax cut will come into immediate effect for new applications and from 1 March for existing borrowers.

It will reduce the company's standard variable rate from 5.75% to 5.65%.

On Thursday, only The One account, formerly the Virgin One account, and Sainsbury's Bank took the step of reducing their rates by the full 0.25%.

The FTSE 100 index closed down 80 points on Thursday and ended just 2 points higher at 3,599 on Friday.

After 14 months on hold, Bank of England base interest rates have been cut to 3.75%, taking borrowing costs to their lowest level since 1955.

If any lenders do decide to pass on the full cut mortgage rates will fall to their lowest level for 46 years.

A homeowner with a £60,000 mortgage would save around £9 a month, reducing monthly repayments to £368.45.

House price bubble?

There were fears among some analysts that passing on the full cut to mortgage holders would further stoke the booming housing market.

But these were dismissed by Martin Ellis, Halifax chief economist.

" People are waiting to see how the market reacts "
Halifax

He said the reduction in interest rates would help support the market as it would help keep mortgage payments down.

"Affordability is set to remain favourable on a measure of mortgage payments to earnings.

"It could mean the market will keep going a little bit longer in the short-term, but overall we are not planning on changing our forecast (of prices rising by 9% during 2003) at this stage," he said.

Ray Boulger, of mortgage broker Charcol, said: "We don't anticipate that this cut will tip us once again towards the unsustainably high house price growth we saw last year.

"A slow, steady rise in house prices will still be the order of the day."

Tracking rates

Customers with tracker mortgages will automatically have their rates cut in line with the Bank of England base rate.

Halifax's two year tracker mortgage was automatically cut from 4.3% to 4.05% following the announcement.

Nationwide also reduced its two-year tracker rate from 4.29% to 4.05%, but held off cutting other rates.

Abbey National reduced its tracker to 3.54% but has yet to make a decision about its other mortgages.