and DONALD MACINTYRE
Britain's biggest mortgage lenders took home owners by surprise yesterday with the announcement that home loans will fall to within a fraction of their lowest level for 20 years.
The move cuts about 0.3 per cent off the average 7.99 per cent standard mortgage rate, and means a saving of around pounds 12 a month on a pounds 50,000 mortgage. The move came amid increasing market confidence that Kenneth Clarke, the Chancellor of the Exchequer, and Eddie George, the Governor of the Bank of England, will cut interest rates after their next meeting on 13 December.
The pound matched its recent all-time low against other currencies, while share prices hit a new record.
Calls for a reduction came as the Chancellor played down hopes of an imminent fall in base rates. Mr Clarke said yesterday: "I am not going to start playing fast and loose with interest rates on the basis of political pressures."
But his Cabinet colleagues acknowledged an interest rate cut along with the rise in living standards promised by the Chancellor could prove critical to Tory fortunes.
Mr Clarke fuelled Tory hopes of a second pre-election tax-cutting budget next year by saying it is "pure blind obvious" the election "will either be towards the end of 1996 or in the beginning of 1997". Employers also urged the Government to cut interest rates immediately by half a percentage point.
In a change of policy, Sir Bryan Nicholson, president of the Confederation of British Industry, said: "The CBI believes that conditions are now right for a sustainable reduction in interest rates."
Halifax Building Society, the UK's largest lender, with 1.9 million home buyers, pre-empted speculation of a base rate fall by announcing its own mortgage reduction to 7.74 per cent from 1 January for existing borrowers. New borrowers will benefit immediately.
Gary Marsh, a spokesman for the Halifax, said: ''We wanted to give the housing market some help as soon as possible".
Abbey National reacted by dropping the cost of its home loans according to the amount borrowed. Loans of pounds 100,000 will face charges of 7.69 per cent while those borrowing less than pounds 59,999 will pay 7.79 per cent from January.
Most other building societies followed with reductions between 0.2 and 0.3 per cent. Northern Rock said that it would bring the cost of its loans for its 500,000 borrowers to a new low of 7.59 per cent.
Budget aftermath, pages 8-10
News analysis, page 17
Market report, page 21