What to do now cost of mortgages is being cut

Banks and building societies have begun cutting the cost of their mortgages after last week’s Bank of England half-point interest-rate cut to 0.5%, igniting hopes of a battle over fixed-rate deals.

Abbey kicked off the likely action in the five-year fixed-rate market with a market-leading deal at 3.95%, plus a £595 fee, for borrowers with a 40% deposit.

The loan trumps HSBC’s former best-buy, five-year fix at 3.99% with a £999 fee. As with HSBC, Abbey’s deal applies only to loans of £250,000 or less.

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HSBC Mortgages

The bank HSBC is aiming to grab a much larger share of the UK mortgage market in 2009.

It has set aside £15bn ($22.3bn) to lend to home owners next year, roughly double the amount it lent in 2007.