The mortgage war begins

It took just a few seconds for the Halifax and Abbey National, so often trend-setters in the mortgage price war, to have that title snatched away from them earlier this week.

A few seconds, during which Nationwide building society announced that it was cutting the cost of home loans from 7.44 to just 6.99 per cent, the lowest mortgage interest rate for more than 30 years. The move, part of a pounds 200m annual profits giveaway to members, also hands savers an immediate 0.25 per cent uplift on their accounts.

For a short time afterwards, no sound was heard. Then came the splutters: "This is just a short-term marketing ploy and we have no intention of following suit."

The problem for the Halifax, Abbey National and others - such as Alliance & Leicester and Woolwich - planning a stockmarket listing next year is that experts believe Nationwide can sustain its price war for the foreseeable future. Moreover, so can other building societies, particularly those not about to de-mutualise.

The other big players must join in the price war and tell their present and future shareholders to expect smaller profits. If they do not, borrowers should prepare to switch their variable mortgages. On a pounds 50,000 home loan, doing so would save pounds 17 a month.

Switching mortgages need not affect your entitlement to the free shares bonanza in the de-mutualisation scramble. You can leave just the minimum, usually pounds 100, to be owed in a mortgage account. Alternatively, for anyone whose mortgage is 75 per cent or less than the value of their home, try Direct Line's telephone service, which charges a variable rate of 6.49 per cent.

Bradford & Bingley Direct is even cheaper, at 6.25 per cent. On a pounds 50,000 loan, this means monthly savings of up to pounds 60 compared to Halifax or Abbey's current rates.

Of course, the real savings are still found in the fixed and discounted market, where Skipton offers 4.25 per cent fixed for two years on loans up to 95 per cent of a home's value. Over the same period, Greenwich has launched a discounted rate of 3.99, or 4.99 for three years. In both cases, borrowers would benefit from a further rate cut anticipated next month.

The important point to remember, however, is that in a price war it is possible to change sides and win. Right now, the big players are making you pay for your loyalty to them.