Halifax, the UK's largest building society, became the latest yesterday to join in the mortgage price war by reducing the cost of loans for its 2.4 million borrowers to 7.99 per cent. At the same time, Halifax produced more gloomy news about house prices.
Halifax's move on rates made it certain that other lenders will follow suit soon. Abbey National and Northern Rock have already done so for their combined 1.7 million home buyers.
Nationwide said yesterday that it, too, would move to slash its house purchase costs, promising to remain "competitive" in the process.
Alliance & Leicester said it was "actively considering" a reduction for its 500,000 borrowers. Peter White, chief executive, said: "We will cut our rate, although a final decision still remains to be made."
Coventry Building Society also said it would drop its own rates to the same level of 7.99 per cent from 1 October.
The cut means that millions of borrowers will soon be paying pounds 366.51 a month for a pounds 50,000 variable rate mortgage. Interest-only repayments will also fall by a minimum of pounds 13 a month to pounds 302.95.
The lenders' rate cut coincided with figures from Halifax showing that house prices remained flat in August, compared with the previous month.
Halifax's figures, which confirmed earlier ones from Nationwide on Friday, showed that over the past 12 months prices have dropped by 2.4 per cent.
House prices paid by first-time buyers continued their unchecked decline, showing a 0.8 per cent fall in August, itself greater than the 0.6 drop the previous month.
Although the year-on-year fall slowed from a high of 3.1 per cent in July, a society spokesman admitted there was no suggestion of a recovery: "At best, the market can only be described as flat, as illustrated by the fact that over the past few years, the UK index has fluctuated within a narrow range.
"Prospects for the housing market are unlikely to improve significantly without help from the Government. Measures to stimulate demand, such as the abolition of the 1 per cent stamp duty on many housing transactions could help to strengthen the market."
Building society chief executives yesterday linked their mortgage interest cuts directly to hopes of a housing recovery.
Mike Blackburn, chief executive of Halifax, said: "We are firmly committed to offering a competitive range of products.
"As base rates are unlikely to rise any further in the short term, we see a rate reduction at this time as an appropriate response to market conditions and one that will be well received by new and existing borrowers alike."
Martin Ritchley, Coventry's chief executive, said: "We hope our action will go some way to easing thedepressed state of the housing market and that other societies will follow suit."
The cuts also followed intense competition between all lenders,to keep a tight grip on their own loan books and to poach new customers where possible. For some, the war is being won.
Coventry announced yesterday that, in the face of mounting competition, and a 15 per cent fall in overall lending in the first six months of the year, it increased its mortgage lending to pounds 229m in the first half of 1995. This compared with the same period last year, when lending stood at pounds 216m. Pre-tax profits rose 9.34 per cent to pounds 18.9m.
Mr Ritchley added: "The results we have achieved endorse our strategy of offering a tightly focused range of competitive products.
Alliance & Leicester also announced that its own profits rose sharply in the first half of 1995, up from pounds 134m in the same period last year to pounds 163m this time.
The society's lending grew by 65 per cent to pounds 1.8bn, almost doubling its share of net lending in the process. About 65 per cent of its lending came through independent intermediaries rather than through the society's branch network.