Mortgage rates hit 40-year low

Mortgage rates reached their lowest levels for more than 40 years today as lenders were quick to pass on the Bank of England's interest rate cut to borrowers.

Homeowners with a £60,000 mortgage will see £9.22 a month knocked off their repayments if their lender passes on the full 0.25% rate cut.

A quarter point fall on a £60,000 mortgage would reduce monthly payments from £395.80 to £386.58

Following the decision a flurry of mortgage providers announced they would be cutting their rates. Among them were Halifax, Nationwide, Virgin One, HSBC and Abbey National.

Barclays, Royal Bank of Scotland and Cheltenham & Gloucester all said they were currently reviewing their rates.

The council of mortgage lenders (CML) said mortgages rates had now hit their lowest levels for more than 40 years.

According to the group the last time rates were lower than they are now was in 1956, when they were reduced from 5.98% to 5.32%.

Peter Williams, deputy director general of CML, said: "Lenders are surprised by this but some have already responded to the decision, which will be welcomed by borrowers.

"The cut in rates is designed to offset the weakening in the economy that the monetary policy committee is now anticipating and is therefore likely to be broadly neutral in its impact on the housing market."

Alex Bannister, Nationwide's group economist, agreed that the interest rate cut would not have a huge impact on the housing market. He said: "What we think is driving the housing market isn't interest rates but people's confidence and income growth.

"We haven't changed our view that the housing market will slow down, though the momentum may keep going for longer than we had expected and it may not slow down as much."

Ray Boulger, of mortgage broker John Charcol agrees:

"The rate of increase is more likely to slow down to more sustainable levels, although there are bound to be "cold spots" where prices will actually fall due to a weak local economy, perhaps because of a major employer closing down.

"That said, today's cut makes mortgages even more affordable which may mean the slowdown in house price inflation could take longer. We have seen no evidence of lenders allowing a borrower to take out a loan they do not believe the borrower could afford."

Mortgage lenders' cuts are as follows:

• Halifax is reducing its variable mortgage rate from 6.25% to 6.00% with immediate effect for new borrowers and from September 1 for existing customers.

• Nationwide is cutting its base mortgage rate from 5.99% to 5.74% for new and existing borrowers from September 1.

• HSBC is reducing its variable mortgage rate by 0.25% to 5.75% from August 31 for new and existing borrowers.

• Virgin One is cutting its rates by 0.25%, reducing them from 6.45% to 6.20%. ? Citibank is cutting its sterling base rate, on which its mortgage rates are based, in line with the Bank of England from 5.25% to 5.00%.

• Abbey National is reducing its classic mortgage by 0.25% to 5.90% for new borrowers from August 6 and for existing borrowers from September 3.