Borrowers rates 'unlikely to fall'

Some of the UK's biggest mortgage lenders, who met the Chancellor on Tuesday, are understood to have told him that the cost of deals for new borrowers was likely to stay high for the foreseeable future.

But lenders also pledged to do more to help homeowners who get into difficulties keeping up with their mortgage repayments.

The Bank of England has unveiled a £50 billion scheme to help tackle the problems caused by the credit crunch, under which lenders can swap their riskier mortgage-backed assets for safer Government bonds in a bid to kick-start the crippled money markets.

Lenders welcomed the announcement as an important step to tackling the current funding difficulties they faced, adding that in "due course" it should help to ensure that competitive mortgages are available.

But an industry source said they had warned the Chancellor that it would take some time before this initiative had an impact on mortgage rates.

Mortgage rates are governed by the inter-bank lending rate Libor, which is currently at 5.90%, 90 basis points above the Bank of England base rate, compared with a historical average of just 13 basis points above it.

Lenders will not be able to pass on lower rates to customers until Libor rates come down, and this is expected to take some time.

The discussions between the Chancellor Alistair Darling, Housing Minister Caroline Flint and key members of the mortgage industry, including Michael Coogan the director general of the Council of Mortgage Lenders (CML), are understood to have focused on what lenders can do to help borrowers who run into problems.

Lenders have said they will only repossess homes as a last resort, while they would continue to meet all statutory and voluntary commitments on treating customers fairly. They also said they would look at new voluntary activities, such as strengthening links with debt advisers, providing updated debt information and pro-actively identifying borrowers who were at risk of facing repossession.