Average mortgage cost down by £212

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The Independent Online

The average home owner will save £212 a year on their mortgage following yesterday's cut in the base rate, which saw most large mortgage lenders slash the cost of borrowing to its lowest level since 1955.

The half-point cut in rates will reduce the monthly repayment on a £60,000 mortgage by £17.70. Halifax, the UK's largest mortgage lender, reacted to the Bank of England's surprise half-point cut by immediately announcing the same reduction it its lending rate, bringing it down to 5 per cent, from 1 December. Nationwide, Britain's largest mutually-owned lender, also passed on the full reduction to borrowers.

Lenders that have sliced rates seven times this year due to unprecedented levels of competition in the mortgage market have brought benefits to around 65 per cent of borrowers whose mortgages are based on standard variable rates. The total cuts this year mean that a borrower with a £100,000 mortgage would save £166.67 a month or £2,000 a year, according to Charcol, a mortgage broker.

Despite the low cost of borrowing, Nationwide and Halifax said they continued to believe that house price inflation would slow this year. This trend may be accelerated by a recent decision by some banks not to pass on further base rate cuts to borrowers in a bid to shore up savings rates. Abbey National and Cheltenham & Gloucester carried through warnings that they would not mirror the full base rate reduction because they wanted to protect savers, who are seven times more numerous than borrowers and whose deposits are a large source of funding for banks' mortgage business.

Lenders never announce changes to savings rates on the same day as adjustments to mortgage rates, but Abbey and C&G asserted that they would not erode rates by the same level as the base rate cut.

Financial institutions have previously cut savings interest to as low as 0.1 per cent in order to fund new mortgage business. But savers as a whole are better off than when interest rates stood at a peak of 15.4 per cent in 1990 because at the time banks were fighting to hold on to mortgage customers.