Lloyds TSB has confirmed it will pass on a full cut in interest rates to existing borrowers on tracker and variable rate mortgage deals if the Bank of England reduces the base rate tomorrow, as expected.

The fifth biggest mortgage lender, which also owns the Chelthenham & Gloucester mortgage brand, has also confirmed that it is pulling all its current tracker deals for new customers, in the expectation that rates will be cut substantially.

Other mortgage lenders are expected to follow suit this afternoon, as pressure mounts on the Bank of England to make a another dramatic reduction in interest rates for the second month in a row.

The Bank's rate-setting Monetary Policy Committee (MPC) is expected to cut rates by at least half a point, but some commentators are calling for up to 1.5 percentage point cut, bringing the base rate down to 1.5 per cent.

Lloyds TSB has promised borrowers that it will lower its standard variable rate in line with the base rate and also said that rates on its tracker mortgages, which are pegged to the base rate, would also fall by the full amount.

A number of banks and building societies, including Halifax, the biggest lender in the UK, impose a collar on tracker mortgages, which means that the interest rate borrowers pay stops falling when the base rate passes a certain point, typically around 3 per cent.

There are around 1.2 million borrowers on tracker deals with collars who may not benefit if the base rate falls.

However, the Financial Services Authority indicated yesterday that Halifax may be forced to lower its tracker rates because details of its collar were not included in an important mortgage document given to borrowers when they applied for a new deal.

Jon Pain, the FSA's retail market manager, said yesterday that a collar could be unenforceable if it is not included in a lender's key facts illustration (KFI) - the mortgage documents given to every borrower. Halifax removed the details of its collar from its KFI in 2005.

Nationwide has a collar which allows it to stop passing on cuts to borrowers with tracker deals when the base rate falls below 2.75 per cent. Skipton and Yorkshire Building Societies have collars of 3 per cent. All the building societies include details of the collar in their KFI.

Lloyds TSB and C&G do not have collars on their tracker mortgages.

Lloyds TSB, which is in the process of taking over HBOS, owner of Halifax and Bank of Scotland, will remove all its current tracker deals for new customers from midnight tonight and says that it be early next week before it reintroduces new mortgages.

It is currently offering some of the most competitive tracker rates on the market, at 1.79 per cent above base, or 4.79 per cent, with a £1995 fee for borrowers with a 25 per cent deposit.

In the hours following the Bank of England's 1.5 percentage point cut in the base rate at the beginning of November almost every major lender pulled their tracker deals.