Fresh rounds fired in the home loans price war

While there was disappointment this week for homeowners hoping for another mortgage rate cut, many thousands of people will still see their monthly payments come down after several more lenders waded into the home loans price war.

Abbey National this week led the charge as banks and building societies continued to respond to the challenge issued by Halifax and Nationwide, which both announced big cuts in their main mortgage rates last month.

Like those two, Abbey is scrapping its standard variable mortgage rate for new borrowers and phasing it out for existing ones. It's being replaced with not one but two new mortgage rates, both of which will track the Bank of England base rate, which was kept on hold this week at 5.75%.

Abbey has 2m borrowers, more than 600,000 of whom pay its standard variable mortgage rate, currently 7.49%. Many of these 600,000 people will from April 30 be free to switch immediately to one of the two new lower rates, which could save a typical borrower with a £60,000 mortgage about £40 a month, or £480 a year. But, they will not be moved over automatically - they will have to ask to be switched.

Abbey is offering them the choice of a "no-frills" tracker rate, currently at 6.65% (0.9% above bank base rate), or a slightly higher flexible rate of 6.75% (1% above base rate) for those who want to take advantage of features such as being able to make overpayments and take payment holidays.

The new lower rates are not immediately available to the 1.3m or so people on special deals such as discounted, fixed or capped rates, or those who are locked into the old standard variable rate for one or more years after enjoying one of these deals.

However, there is some hope for those Abbey borrowers who feel they are missing out on its generosity. Abbey has pledged to contact all its existing mortgage customers over the next 12 months to offer them a homeowner's review, which will involve discussing their mortgage and the possibility of moving to one of the new rates.

As for people taking out a new loan with Abbey in the coming months, the bank says it will continue to offer discounted and fixed rate mortgages to those such as first-time buyers. People who take these out will move to the new variable rates at the end of these offer periods, and from now on all new mortgages will also be calculated on a daily interest basis.

Ray Boulger at mortgage broker Charcol says Abbey National is "very largely copying" what Halifax did last month when it introduced a new variable rate of 6.75%. However, one of the most positive things is that Abbey has guaranteed that its two new variable rates will track the base rate by either 0.9% or 1% for almost two years, until January 1, 2003.

Mr Boulger reckons the pressure is now on leading lenders such as Cheltenham & Gloucester, Alliance & Leicester and Bristol & West to match Nationwide, Halifax and Abbey's moves.

Of the other lenders, Stroud & Swindon building society this week introduced a new lower members' loyalty rate for borrowers who have been with the society for five years or more. From March 17 these people will now pay 6.74% - 0.75% below its standard variable rate, which itself is being cut to 7.49% from 7.7%.

Stroud & Swindon is offering a range of mortgages including one called Step Discount 2006, which offers 2.05% off the standard rate until July 2003 (giving an initial pay rate of 5.44%) followed by a guaranteed 0.5% discount until July 2006. There are no early redemption penalties at any time but there is a £295 completion fee. For remortgages, the society will throw in a free valuation and pay your legal fees.

Kensington Mortgage Company, which describes itself as the largest lender specialising in borrowers who might have problems obtaining loans from traditional lenders, such as the self-employed and those with past debt problems, has cut its standard variable rate from 7.05% to 6.7%. This means that all borrowers not on fixed rates will see a reduction in what they pay. It is also offering a 1.25% variable rate discount on all new products from now until May 31, 2002.

For variable loans Kensington typically charges a margin of between 2% and 4% on top of the standard rate depending on the level of risk, so that means the lowest non-fixed rate it is now offering new borrowers is 7.45%. Its fixed rates start at 7.24%.

With the smart money on more interest rate cuts later this year, loans that track the bank base rate look quite appealing. Leeds & Holbeck building society is offering a new deal where you pay bank base rate minus 0.5% until the end of 2001 - that is, 5.25% at the moment - then you pay the bank base rate until June 1 2004. There are no redemption penalties at any time, unlimited capital repayments can be made, the minimum deposit is 5%, and for those remortgaging it will pay the legal fees.

However, there is a £199 completion fee. Borrowers submitting their application online at www.leedsmortgages.co.uk will receive £100 cashback.

For those people who want the stability of knowing exactly what their monthly payments will be, a fixed rate loan could be the answer. Mortgage broker Savills Private Finance has launched a loan fixed at 5.09% until May 1 2003, with no redemption penalties after this date. However, the minimum amount Savills will lend is £100,000 and the arrangement fee is £399.

More are checking out deals online

New figures this week revealed an explosion in the numbers of people who are using the internet to research and compare mortgage deals.

But only a tiny fraction of these people are actually applying for their home loan online, admitted personal finance website Moneysupermarket.com. After finding out the information they need, the vast majority are presumably going directly to the lender whose deal they like the look of.

Moneysupermarket.com says the current mortgage price war has triggered a surge of interest in home loans. After the Halifax and Nationwide kicked off the battle for borrowers, the site's mortgage zone notched up almost half a million page impressions within the space of a week. It is one of several sites that allows people to research thousands of home loans.

Of those who do apply for a mortgage online, very few are choosing Nationwide or Halifax deals, it says. The five most popular mortgage providers online are Northern Rock, Portman building society, West Bromwich building society, Scarborough Direct and Coventry building society.

Another survey this week revealed that 2.3m people are now buying or arranging their finances online - 18% more than 6 months ago. The Mori poll commissioned by online motor, home and travel insurance broker Screentrade.co.uk also found that the most popular personal finance products investigated on the net are car insurance, stocks and shares, and current accounts.

Meanwhile, Find (www.find.co.uk), an online directory of financial websites, says mortgage lenders are the sixth most-inquired-about topic after motor insurance, personal loans, credit cards, Isas and independent advisers.