Abbey joins loans war

Abbey National and Cheltenham & Gloucester have become the latest lenders to take up arms in the mortgage war by offering existing customers big cuts to their interest rates.

Attention will now focus on the NatWest/Royal Bank of Scotland group to see if it follows suit. It has not finalised plans to make an announcement yet.

Abbey is ditching its standard variable rate (SVR) of 7.49 per cent in favour of two new deals. The first is a tracker mortgage at 6.65 per cent and the second a flexible mortgage that charges 6.75 per cent.

The 700,000 Abbey's mortgage holders on the 7.49 rate will have to apply for the new deals from the end of April.

C&G will track the Bank of England base rate until June 2003, currently giving a payable rate of between 6.6 and 6.75 depending on how the interest is calculated. The SVR was previously 7.5 per cent. Existing borrowers not on a special deal will qualify. Those on the deals will see rates capped at 2 per cent above base rate.

Mark Harris of independent financial adviser Savills Private Finance says: 'This is similar to what the Halifax and Nationwide have done. It looks like the others didn't want to be left behind.'

Halifax and Nationwide slashed mortgage rates late last month in a bid to hang on to existing customers and grab more market share. The former cut its standard variable rate to 6.75 per cent while Nationwide pitched its rates at between 6.49 and 6.99 per cent, depending on the size of the deposit.

As far as borrowers are concerned, the cuts are good news for those stuck on a high variable rate, Harris says, but they can still find better deals by looking around - provided there is no exit penalty on their current homeloan.