Big guns go to war on the home front

This week saw an outbreak of fresh hostilities in the home loans war as Halifax and Nationwide announced headline-grabbing cuts in their mortgage rates.

In all, more than 900,000 borrowers will benefit immediately from the cuts, with some set to enjoy savings of as much as £1,000-plus a year. The moves will put pressure on other leading lenders to slash their borrowing costs too or risk facing an exodus of unhappy customers.

It's great news for consumers but people shouldn't get too carried away by their apparent phenomenal generosity. Look closely and you'll find some caveats and catches lurking in the small print. And remember that lower mortgage rates usually mean cuts in savings rates.

First the good news. If you're a borrower with the Halifax or the Nationwide, you are on the standard variable mortgage rate and you're not tied in by early redemption penalties, you are quids in. Halifax has announced that its new variable rate will be 6.75%, down from 7.5%, which means someone with an average £60,000 repayment mortgage will see their monthly payments fall from £448.55 to £414.54 - a saving of £34.01 a month, or £408 over a year.

Meanwhile Nationwide is switching more than 500,000 standard variable rate borrowers on to its new "base mortgage rate," which means that the interest they pay falls from 7.09% to 6.49%. A customer with a £60,000 repayment mortgage will save £23.01 a month, or £276 a year.

But Halifax borrowers won't be transferred automatically on to the new lower rate - they will have to ask to be moved. That means borrowers who are either unaware of the change or who don't get round to asking to be transferred will stay stuck on the higher rate.

As an added plus, Halifax is moving from annual to daily interest calculation for its borrowers, which reduces your costs and means that though Nationwide boasts the lower rate, both lenders' rates work out broadly similar over the long term.

Halifax is also promising that its new variable rate will track the Bank of England base rate for the rest of this year, while Nationwide guarantees that its base mortgage rate will never be more than 2% above the base rate.

However, while close to 1m Halifax and Nationwide borrowers are benefiting immediately, around 2.75m others will see much smaller cuts or no reduction at all in what they pay.

Looking at the Halifax announcement first, it needs to be made clear that an existing customer on one of its discounted rate mortgages will not see their rate tumble by 0.75% - what they pay will still be based on the old 7.5% standard rate, minus the amount of their discount. However, when they get to the end of the discounted period they will move to the new lower variable rate.

Borrowers who had a Halifax discounted or fixed-rate deal and are now locked into the standard variable rate for one or more years will also stay on the old 7.5% rate, though the bank will allow them to switch into another Halifax deal and bring the redemption penalty with them.

Nationwide's new arrangements are complicated too. While it is introducing the new 6.49% base mortgage rate for all new and many existing customers, it is keeping a substantial number of its borrowers on its old standard variable rate, though it has sweetened the pill a bit by cutting it slightly from 7.09% to 6.99%.

Existing customers with discounted rate and cash back mortgages will continue to pay this standard rate, or a discount off it, as will borrowers who are now locked in to the standard rate for a period after enjoying a discount or fixed rate. At the end of the deal they will automatically be moved on to the new lower mortgage rate.

All eyes are now on other lenders to see whether they match the rate cuts announced by Halifax and Nationwide.

But if you're already fed-up with all these mortgage melodramatics, you ain't seen nothing yet.

Nationwide says it will be mounting a full-scale campaign over the issue of banks overcharging borrowers, while Halifax revealed it is planning a new spring television advertising campaign similar to the one with singing bank cashier Howard Brown - this time with a member of staff trilling about its new lower mortgage rate.