Northern Rock yesterday slashed mortgage rates in a move experts said could inject further life into the housing market.
It came on the same day that the Woolwich – owned by Barclays – made a similar move and follows several other banks that have reacted to cheaper funding costs by cutting their rates.
Northern Rock said it would offer two-year flexible fixed rate mortgages at 3.75 per cent to those borrowing up to 70 per cent of a home's value. A tracker of 2.20 per cent plus base rate is also on the table, while arrangement fees have been cut by as much as £400. Previously, the state-owned bank would only offer its best deals (4.09 per cent in the case of the two-year fix) to anyone borrowing 65 per cent of a home's value.
Woolwich cut rates by 0.4 per cent on its leading tracker mortgage to 2.79 per cent (base rate plus 2.29 per cent) for people borrowing up to 70 per cent of a home's value. Fees are £995 but there is a fee-free option at 3.19 per cent (base rate plus 2.69 per cent).
Ray Boulger, senior technical manager at John Charcol, said: "These are significant moves. Northern Rock has cut their best rates quite significantly. Banks are seeing their funding costs decreasing, which is resulting in better deals and could help the housing market." Northern Rock cannot compete too aggressively if the bank is to avoid violating EU rules concerning state aid given to banks.