Sun shines for home buyers

Talk about mixed messages. On Tuesday, Nationwide building society warns that house prices are rising at an "unsustainable" rate, a situation partly fuelled by the low cost of borrowing. Then, 48 hours later, the Bank of England makes home-owning even cheaper with a shock interest rate cut that takes mortgage rates to their lowest level for decades.

Britain's lenders were quick to pass on the Bank's quarter-point interest rate cut - the fourth this year. And they passed it on in full, all too aware there would be an outcry if they didn't.

The Halifax says that the last time its main mortgage rate was this low was in February 1963, when the average cost of a UK home was £2,985 and Cliff Richard was top of the charts with Summer Holiday.

Britain's biggest lender is cutting its new standard variable mortgage rate from 6.25% to 6%, a move that will mean a monthly saving of £10.42 for someone with a £50,000 Halifax interest-only mortgage (down from £260.42 to £250), or a saving of £7.68 for someone with a repayment mortgage of this size. Someone with a £150,000 mortgage and on the new standard rate will save up to £31.25 a month. Halifax's "old" standard rate falls from 7% to 6.75%.

Abbey National says its "classic" mortgage rate has been reduced to 5.9% while its flexible "lifestyle" rate falls to 6%. Its old SVR, which a number of its borrowers still pay, goes down from 7% to 6.75%.

Other lenders passing on the full rate reduction include Nationwide, Cheltenham & Gloucester, HSBC, Barclays, Woolwich and Virgin One. Just to be different, Northern Rock cut its standard rate by 0.24%, from 6.99% to 6.75%.

While millions of people with standard variable rate and discounted rate mortgages will be celebrating the latest cut, those who have flocked to take out fixed-rate deals in recent weeks may feel a bit miffed. However, no-one knows what will happen to interest rates next, and those looking to take out a mortgage who are on a tight budget may still want to opt for the certainty offered by a fixed-rate deal, knowing they won't suffer any nasty shocks should interest rates shoot up suddenly.

The base rate cut took most commentators by surprise, given the buoyancy of the housing market, but the Bank clearly felt that responding to the plight of the struggling manufacturing sector was paramount. The monetary policy committee may well be gambling on the rate cut not having a huge impact on property prices.