Cumberland Building Society yesterday accused its rivals of making excessive profits out of mortgage lending, and yesterday cut its own variable rate to a record low of 7.6 per cent.
The decision to lop 0.75 per cent off Cumberland's standard rate, with immediate effect, will mean a saving of almost pounds 35 a month on a pounds 60,000 mortgage.
Ian Kitchen, the society's chief executive, said: "We have been holding off for about two years to see if any other society was prepared to take the lead but when we saw that they weren't, we went ahead.
"It is a bit early to say whether any of the larger societies will follow, but we have been of the view for some time that profits on lending are too high. "
A spokesman for the Halifax, where the variable rate stands at 8.35 per cent, said: "We will observe developments and react if we need to."
Cumberland's rate reduction applies only to borrowers who have been with it for three or more years. The society said yesterday that two- thirds of its 17,000 mortgage-holders would benefit. But it added that many among the more recent borrowers have already taken advantage of a discounted or fixed-rate mortgage. As they reach their three-year borrowing period, they too will receive the rate reduction.
The society, 27th in size throughout the UK, lends to borrowers in the North-West of England and parts of Scotland.
Cumberland's move comes as figures from the Building Societies Association show that margins between base rates and mortgage rates for all societies has reached an 18-month low. Average mortgage rates are now more than 1 per cent lower, relative to base rates, than they were in 1993. The reduction follows a decline in the heavy losses incurred by many societies as repossessions reached a peak a few years ago.
A spokeswoman for the BSA said: "All building societies are moving towards sharing some of their profits with borrowers and savers. This has taken many forms, including loyalty bonuses and discounts on mortgages. The amount of profits each society makes depends on a wide variety of factors."