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Northern Rock announces reduction in mortgage rates

Northern Rock, the government owned bank, has today announced that as of 1 February there will be a 0.25% reduction in its variable rate mortgage which will stand at 5.09%. Existing tracker fund customers will receive the full 0.5% reduction in UK base rates as dictated by the terms of their agreements. The reduced benefit for variable rate holders compared to the full benefit for tracker mortgage holders is interesting and the bank seems to be playing the "savers" card as a reason. However, as yet we have seen no benefit for savers.

This move now adds Northern Rock to the list of mortgage companies in the UK who have responded to the recent base rate reduction by dropping their mortgage rates which include Lloyds TSB, HBOS, Royal Bank of Scotland, HSBC and Nationwide building society. However, it must be noted that not all in the above list have reduced their rates by 0.5% despite being under significant pressure from the authorities.

While the headline news is good for UK mortgages, underneath the surface there is still a significant shortage of liquidity both in the mortgage and the loans markets. This is the real reason why the UK economy has yet to improve despite hundreds of billions of pounds being poured into the system. How the government can change this in the short to medium term is debatable but either way time is of the essence.

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