HBOS, the UK's biggest lender, has responded to immense pressure from the Government by cutting its variable rate in line with the Bank of England base rate.

It's standard variable rate will fall by 1.5 percentage points. It follows announcements by Royal Bank of Scotand and Lloyds TSB, the other two lenders set to be part-nationalised as part of the £37 billion Government plan to bolster the balance sheets of struggling banks.

A number of lenders have now confirmed that they will be passing on the cut in variable rates, including Nationwide, Britain's biggest building society and third biggest lender and Abbey, the second biggest lender. Bradford & Bingley (B&B), which was nationalised in September, has also cut its product variable rate.

A homeowners with a £150,000 variable-rate mortgage will save £187.5 a month.

Northern Rock, the Government-owned lender, is now the only one of the top five mortgages lenders not to pass on the cut in the base rate.

Halifax was one of a number of high street banks, along with Nationwide building society which met Alistair Darling this morning in Downing Street for a meeting to discuss their response to the one and a half point cut. The Government has been putting lenders under immense pressure to pass on the cut to homeowners on variable rate deals.

Lenders have pointed to a sharp drop in the wholesale cost of mortgage funding for their ability to reduce rates. Three-month Libor, the interbank money markets which funds variable-rate lending, has fallen by almost 1.1 percentage points in response the Bank of England's base rate cut yesterday.

The pressure is now intensifying on Britain's remaining mortgage lenders to pass on the cut to borrowers on variable rate deals. Barclays, which owns the Woolwich mortgage brand and HSBC insist rates are under review and any changes will be announced shortly.

Neil Johnson, of the Building Societies Association, warned: "The size of yesterday's cut was totally unexpected. Because of the magnitude of the reduction, it is understandable that it would take a day or two for lenders to respond."

Yesterday the Bank of England cut the cost of borrowing by 1.5 points to 3 per cent in an effort to shore up the economy and stave off a deep recession. The surprise cut took the base rate to its lowest level in more than half a century.

Instead of passing on the cut to homeowners, lenders scrambled to prevent hard-pressed borrowers from taking advantage of the announcement by pulling existing tracker deals that are pegged to the base rate. Only HSBC, Co-operateive Bank and a handful of smaller building societies still have deals on the market.

Halifax withdrew all its tracker deals yesterday evening, as did Abbey and Barclays. According to Moneyfacts.co.uk, the financial website, 25 lenders have now withdrawn all their tracker mortgages from the market.

B&B has reduced its product variable rate (PVR) overnight in line with the Bank of England's base rate cut. Around 90 per cent of its customers are either on this rate or are on fixed or tracker deals which revert to it. The average rate is pegged at between 1.5 and 1.75 points above base, meaning borrowers pay interest between 4.5 and 4.75 per cent.

Experts said that B&B had no choice but to pass on the cut as its PVR is pegged to the base rate.

More than 4 million homeowners on existing tracker mortgages will benefit immediately from yesterday's cut because their deals are directly linked to the base rate.

About 800,000 homeowners are on their lender's standard variable rate (SVR), or discounted deal which is pegged to it.

Lloyds TSB was the first lender to cut its SVR to 5 per cent because of a clause in its mortgage contracts promising that its variable rate will never be more than 2 percentage points above base.

Melanie Bien, of Savills Private Finance, a broker, said: "Lenders are really going to struggle to pass on the full cut. No one expected the base rate to be cut this far. It should have a massive effect on the mortgage market. This is a historic, dramatic reduction."

Mortgage brokers have also given warning that thousands of borrowers may not benefit from future cuts in the base rate because many lenders have a "collar" which stops tracker rates falling below a certain level.

Halifax, which is set to be taken over by Lloyds TSB, has a rule which allows it to stop passing on reductions in the base rate to borrowers on a tracker deal when it falls below 3 per cent. Nationwide Building Society will also refuse to pass on any decreases if the base rate sinks lower than 2.75 per cent.

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