Lenders vow to pass on rate cut

A flurry of banks and building societies said they were to drop rates by 1.5% after the Bank of England slashed the base rate on Thursday.

The move by lenders came after banking chiefs were hauled in front of the Chancellor and told they must pass on the cut "as soon as possible".

Among those showing their hand were Halifax and Nationwide, respectively the UK's largest lender and building society. Both announced that their standard variable rates (SVRs) would be coming down in line with the Bank of England's announcement.

They followed Lloyds TSB and Abbey, both of which had earlier pledged to drop their rates by 1.5%. Royal Bank of Scotland and Scottish Widows also announced that they were to reduce the cost of their mortgages. Later, Nationalised banks Northern Rock and Bradford and Bingley also said they were passing on the full interest rate cut to its mortgage customers.

The cuts will provide some much-needed relief for hard-pressed homeowners, reducing the monthly cost of a typical £150,000 mortgage by £138 to £887. People who are heavily mortgaged with a £250,000 loan would see their repayments drop by £230 a month, or £2,757 a year.

Earlier, Chancellor Alistair Darling told banking chiefs to pass on the interest rate cut to customers "as quickly as possible", according to sources. The heads of all high street lenders were summoned to a breakfast meeting at the Treasury at which they were urged to drop mortgage rates.

It follows the shock move by the Bank of England on Thursday to slash the bank base rate by 1.5% to 3% - the lowest it has been in more than 50 years.

Prime Minister Gordon Brown welcomed the banks' decision to pass rate cuts on to customers.

Speaking in Brussels, Mr Brown said: "(On Thursday) we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses."