Banks 'Slug it Out' as Abbey Cuts Rates Again

Cuts to mortgage deals have been imposed by lenders, in the run-up to the Bank of England's base rate decision later this week.

Abbey, Britain's biggest mortgage firm, said that two and three-year fixed and tracker rates would be receiving a further reduction of 0.1 percent yesterday. This follows a previous round of cuts, imposed by the lender just last week.

Other providers who have recently reduced their rates include the Halifax and HSBC.

Later today, the Bank's nine-member monetary policy committee will meet and decide whether to raise or lower the base rate from its current level of five per cent. Groups including the National Association of Estate Agents have already urged that a cut be imposed, in order to make loans cheaper and stimulate the mortgage market.

Falling house prices and a constriction in credit supply have caused the sector to shrink markedly in recent months. Figures from lenders show that current mortgage approvals rates are running at around half those of 12 months ago due to these financial pressures.

However, Ray Boulger at mortgage brokers John Charcol told the BBC that recent falls in the rates at which banks lend to each other have given mortgage firms some leeway in offering cheaper deals - which some lenders have taken advantage of.

"Two-year [inter-bank] swap rates are now one percent down from their peak in the middle of June," he explained. "So there are increased signs of competition in the market and the big lenders are starting to slug it out a bit."