Halifax, the market leader with 2.5 million mortgages, has cut its standard variable rate to 8.2 per cent, yielding a saving for the average borrower with a pounds 60,000 endowment mortgage of nearly pounds 24 a month.
The Abbey National, Nationwide, Royal Bank of Scotland and the Yorkshire cut by similar amounts yesterday. Other lenders are expected to follow in the next few days.
One lender, Bradford & Bingley, one of the dwindling band of building societies still owned by its borrowers and savers, said it would be cutting its standard rate by 0.65 per cent to 7.85 per cent effective on Sunday.
However, while most of Britain's 9 million borrowers will be pleased to get an average pounds 20 saving, particularly in the run-up to Christmas, the benefits will not be felt by the 3 million homeowners who have taken advantage of the growing number of cheap deals on offer to fix their mortgages for periods of two to five years.
Mark Harris, a director of the financial services arm of Savills, the estate agency chain, said most of those on fixed deals will have taken them out at 6.7 per cent or less and will still be better off than the majority of borrowers who will still be paying interest at more than 8 per cent.
The big losers are the thousands who locked themselves into 25-year deals at rates of 9.5 per cent, such as those offered by National Westminster Bank at a time when memories of 12 or even 15 per cent home loan rates were still fresh in borrowers' minds. They face penalties of up pounds 50,000 if they seek to switch to cheaper deals.
David Sheridan, at NatWest said, yesterday: "Demand for such mortgages had dried up because of people's expectation that rates will fall through the floor."
Mortgage advisers say rates could now fall even more sharply, and with the UK increasingly likely to join the euro within the next few years, mortgage lenders say that 3 to 4 per cent mortgage rates are now a realistic prospect for the UK within the next few years. Ian Begg, at the Halifax, said: "Rates are going to come down a hell of a long way."
Analysts said the fact that the banks and building societies have moved so quickly reflects growing concern among lenders about the risk of recession hitting housing sales and forcing up arrears.
The top end of the housing market has already been hit by the collapse in the Russian and Asian economies, which has had a knock-on effect on the numbers of rich foreign buyers seeking prestige properties in the UK.
The broader market has been more stable. According to the latest Halifax survey, out last week, prices are rising on average by about 5 per cent.
However, it is feared that if the economy tips into recession next year, prices could fall and the number of repossessions rise as unemployment starts to bite. Simon English, at Independent Mortgage Collection, a mortgage broker, said: "We believe the cut was necessary to prevent a downturn in the housing market."Reuse content