Personal Finance: The new cut in mortgage rates is welcome news to all borrowers. But some will be celebrating sooner than others ...

I HAVE two major reactions to this week's decision by the Bank of England's Monetary Policy Committee to drop base rates by 0.5 per cent.

The first, and most obvious, is that the move, greater than most experts had anticipated, is excellent news for millions of borrowers. It means that on a typical pounds 60,000 interest-only mortgage, homeowners will be pounds 23.75 a month better off.

This follows last month's decision to cut base rates by another 0.25 per cent, which should leave a typical buyer paying about pounds 35 less than they were in September - a useful Christmas present for many.

Many homeowners have been feeling the pinch, while rising interest rates meant fewer people were tempted to buy a home for the first time or trade upwards. Their fears should now ease off slightly.

However, as we show in our story on the front of this section, not everyone gains from rate cuts to quite the same extent. Alliance & Leicester decided last month that it would cut its rates by 0.3 per cent, marginally more than the average. Except that the A&L is proposing to carry out this cut only in January.

In effect, if you are on a variable rate with the Alliance & Leicester, you will be paying pounds 70 more than if you were with Yorkshire Building Society between now and January. In other cases, the gap is far smaller, but still rather sneaky. Given that rate changes such as this are likely to be a regular event over a mortgage's lifetime, potential "losses" could mount up significantly.

New borrowers and those who are re-mortgaging should bear this in mind when considering a mortgage. For tips on how to obtain the best mortgage, The Independent offers a free 36-page Guide to Flexible Mortgages. For your copy of the guide, sponsored by First Active, call 0800 550551.

The reverse side of the same coin is that savers will be badly affected by the cut. Rates are likely to drop quite quickly for them (don't they always?). Here it may make sense to opt for a fixed rate account, as we explain on page 4.

The other effect of the rate cut, perhaps surprising to some, was the manner in which the stockmarket reacted. Given that it was exactly what the City had been demanding for the past month, to see the FTSE 100 share index fall by 143 points on the day of the cut itself, was unsettling at first sight.

One quote from a dealer gave the game away: investors decided the excitement was over for the time being, reverting to their habit of buying on the rumour, selling on the fact, he said.

The implication of this view is that the 1,000-point rise we have seen in the Footsie over the past month was based on the assumption of rate cuts and that the rally is over, for now at least. Don't be too surprised if markets start moving back down again. Sorry.

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