Abbey cuts tracker mortgage rates

Abbey is to cut its two-year tracker and flexible mortgage rates by 0.1 per cent following the government's move to ease the credit crunch.

Yesterday, chancellor Alistair Darling announced plans for Treasury Bills to be swapped for banks' mortgage backed securities.

Abbey - owned by Spanish bank Santander - was the first bank to respond, although it also yesterday cut back its buy-to-let mortgages and offered reduced rates for those with higher deposits.

A spokesperson for the bank said: "Abbey welcomes and supports the Bank of England's decision to broaden its range of accepted collateral. It is an important step in bringing greater liquidity to the market.

"We believe this extra funding will, in time, reduce Libor and in anticipation of this we have decided to reduce rates on tracker and flexible deals by 0.1 per cent.

"We will continue to review the cost of funding and will look to reflect further changes in our mortgage range going forward. We hope other lenders will also act to support the stimulation of the mortgage market."

Abbey's move will only affect a minority of new borrowers in the market, and follows weeks of lenders increasing rates despite the Bank of England cutting base rates three times since December.

Last week Halifax increased interest rates on its two-year fixed and tracker mortgages by 0.5 per cent.

Following Mr Darling's meeting with mortgage lenders today and the Bank of England action, further lenders are expected to bring in cuts – but in the background of rises these should provide little respite to borrowers.

Banks have been unable to pass on Bank of England base rate cuts as the inter bank Libor rates have remained high, as banks have been unwilling to lend to each other lest the value of mortgage-backed securities dives amid an economic and housing crisis.