Abbey has signalled that it will reopen its doors to borrowers with smaller deposits after cutting rates on one of its mortgage deals.

The UK's second-biggest lender will reduce rates on Monday by 0.6 percentage points for borrowers who can find at least 15 per cent of the cash. The move is one of the biggest single interest rate reductions since mortgage rates began their downward trend two months ago.

The rate on a two or three-year variable deal for up to 85 per cent of a property's value will fall from 7.04 per cent to a more affordable 6.44 per cent, while the fee will come down from £1,499 to £995. On a £150,000 loan, the cut shaves £75 a month off repayments.

Brokers said it was the first time that Abbey has offered a competitive deal to borrowers with less than 25 per cent equity since the start of the squeeze on the mortgage market.

For months, the bank had effectively banished borrowers with small deposits, including first-time buyers, by charging off-putting rates and fees on deals up to 95 per cent of a property's value.

Experts welcomed the cut as a step in the right direction. David Hollingworth, of London & Country, a broker, said: “It is certainly a positive sign that they have chosen to improve their offering to those with a deposit worth less than 25 per cent.”

However, the new deals are not competitive enough to top the best-buy tables in this category, nor do they cater for the most cash-strapped borrowers, for whom a deposit of 15 per cent - equal to a daunting £22,500 on a £150,000 property - is still out of reach.

Despite the cut, Abbey will continue to charge rates as high as 7.09 per cent and fees of £2,499 to borrowers wanting a loan for more than 85 per cent. The lender will also continue to reserve its best rates for borrowers who want loans for less than 75 per cent.

Aaron Strutt, of Chase de Vere Mortgage Management, another broker, said: “This is nothing more than a gesture from Abbey, which hasn't offered anything competitive above a loan-to-value of 75 per cent for months. The rates are still not best-buy and are still only up to 85 per cent, which doesn't help the thousands of borrowers who need more than this.”