Lenders brace for renewed warfare

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The Independent Online
NIC CICUTTI

Britain's biggest mortgage lenders are poised to renew the home loan price war within weeks if base rates fall by another 0.25 per cent.

Experts said that lenders' refusal to act on yesterday's cut by Kenneth Clarke, the Chancellor, was a reflection of the narrowing of margins between their own rates and those of the Bank of England.

If cuts do come, this time they are more likely to be announced from some of the smaller building societies.

Rob Thomas, a building society analyst at UBS, the Swiss banking group, who predicted earlier downward moves, said: "The difference between the base rate and mortgage rate has been compressed in the past few months.

"If there was another 0.25 per cent reduction in base rates, the societies would probably react very quickly. The omens are good for a further base reduction by the end of March.

"The issue may now be one of whether some of the smaller societies react by pushing down their mortgage rates in an attempt to grab some of the limelight."

His comments came as big lenders said yesterday that earlier reductions, which have cut the cost of mortgages by about 0.75 per cent in the past five months, had already anticipated the downward move.

Although several lenders, including Nationwide and Woolwich, said they were studying the market and would remain competitive, both insisted they had no plans to reduce rates below their current average of about 7.49 per cent.

Resistance to a mortgage rate cut was stiffened by opposition from Halifax and Abbey National, both of which have been at the forefront of the home loan price war in recent months. Both societies said they saw no need for further reductions in the meantime.

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