'Wait and see' lenders slow to follow up on base rate cut: New borrowers first to benefit. Vivien Goldsmith investigates

The half-point cut in lending rates is widely believed to be the first move to lower interest rates, with more reductions in the pipleline.

Some mortgage lenders have reacted with an immediate cut for new borrowers and a 'wait and see' for existing customers, while others are holding back to see the contents of Kenneth Clarke's Budget box before making a move.

Northern Rock, the eleventh largest building society, with 170,000 borrowers, announced yesterday that it was dropping its basic mortgage rate by 0.34 percentage points from 7.99 per cent to 7.65 per cent. It offers new borrowers with a deposit of at least 25 per cent a 4-point reduction until July, which makes a rate of 3.65 per cent.

'This is the lowest rate since our records began in 1943,' Christopher Sharp, chief executive, said. Payments at that rate on a pounds 30,000 25-year repayment loan are pounds 139.40 a month - less than half the pounds 312.20 cost of servicing the same loan when rates were at their peak of 15.6 per cent in 1990.

'This rate anticipates further cuts. We do think there will be another 0.25 per cent cut, but we don't know when. It's anybody's guess. We think it may be January, but that's a few months away and we wanted to do something now in this flat housing market, with the prospect of a Budget which is unlikely to produce anything good for homebuyers,' Mr Sharp said.

Existing Northern Rock borrowers will not see their rates cut until the new year - but then, nor will Northern Rock's savers.

Royal Bank of Scotland, which is hoping to expand its mortgage businesss, has cut its rate by the full half-point to 7.49 per cent, while Nationwide, National & Provincial and NatWest Bank have cut basic rates by 0.25 of a percentage point to 7.74 per cent.

But in no case will existing borrowers actually see a reduction in monthly mortgage payments until next year.

Halifax, Abbey National, Leeds Permanent and Cheltenham & Gloucester are among the lenders waiting until after the Budget to make a decision on where to pitch their rates.

Lenders fear that the Chancellor will meddle with mortgage interest tax relief. Under the plans laid down in the last Budget by Norman Lamont, the tax relief is already planned to drop from 25 to 20 per cent.

With mortgage rates at 7.99 per cent this will cost an extra pounds 9.97 a month on endowment mortgages of pounds 30,000 or more. The cost of a pounds 30,000 loan rises from pounds 149.83 to pounds 159.80. But with rates down at 7.74 per cent, payments with 25 per cent relief would be pounds 145.13, and with 20 per cent relief, pounds 154.80. If tax relief were abolished, the loan would cost pounds 193.50 a month.

----------------------------------------------------------------- MORTGAGE CHANGES ----------------------------------------------------------------- Loan 7.99% 7.74% 7.49% Repayment pounds 30,000 195.44 191.96 188.53 pounds 40,000 262.08 256.99 251.97 pounds 50,000 340.08 333.33 326.67 pounds 60,000 418.08 409.67 401.36 pounds 100,000 730.07 715.02 700.13 Endowment pounds 30,000 149.83 145.13 140.45 pounds 40,000 216.41 209.63 202.87 pounds 50,000 283.00 274.13 265.29 pounds 60,000 349.58 338.63 327.70 pounds 100,000 615.91 596.63 577.37 -----------------------------------------------------------------

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