The Bank of England has cut the base rate to its lowest level since 1951. The reduction to 2 per cent is the third successive drop in the base rate in as many months and some borrowers will be hundreds of pounds better off as a result.

Which banks have passed on the cut?

Only a handful of banks have so far committed to passing on the full interest rate reduction to borrowers on variable rates - Lloyds TSB, HSBC, Barclays and Bristol & West. Nationwide is passing on a cut of 0.69 percentage points to its SVR, reducing it to 4 per cent. Halifax, Britain's biggest lender, is only cutting its SVR by a quarter point.

Last month, when the base rate fell by 1.5 percentage points to 3 per cent, the Government put lenders under enormous pressure to reduce rates accordingly. After a breakfast meeting with Alistair Darling, almost every major lender agreed to reduce their standard variable rates (SVR) by the full 1.5 percentage points.

However, HSBC and Barclays were in the minority of banks which stubbornly refused to play ball. HSBC did eventually reduce its SVR, but only by 1 percentage point.

Mortgage experts expect Royal Bank of Scotland to pass on the cut after the bank accepted huge sums from the Government as part of its £37 billion bail out of the banking system. State-owned lenders Bradford & Bingley and Northern Rock are expected to do the same.

However, other lenders are not expected to reduce their rates because of the severe squeeze on liquidity in the financial markets. The Council of Mortgage Lenders has warned that banks and building societies need to protect their profit margins.

Who will benefit?

If you are one of the millions of homeowners with a tracker mortgage then it is likely that you will benefit. Trackers are pegged to the base rate so your interest rate falls every time the Bank of England cuts the base rate. This lowers your monthly mortgage payments. A borrower with a £150,000 interest-only mortgage will see their monthly mortgage bills fall by £125 after today's announcement.

However, not all tracker borrowers will benefit from today's cut because some lenders have clauses in their small print, known as a "collar", which allow them to stop reducing interest rates when the Bank of England base rate drops past a certain point, typically around 3 per cent. Halifax and Nationwide have a collars on their trackers but has announced that they will not enforce them. However, borrowers with deals from the Skipton, Norwich & Peterborough, Yorkshire, Darlington or Chesham are unlikely to see their interest rate fall any further.

If you are on a variable rate deal you will have to wait to see if your bank joins Lloyds TSB and HSBC in reducing their standard variable rates. Homeowners on a fixed-rate deal will not see any benefit because their rate is fixed until the end of the term.

Will it be easier to get a new mortgage?

Lenders still require large deposits of up to 40 per cent on their best deals, while mortgages for borrowers with less than a 25 per cent deposit have almost disappeared from the market completely. The squeeze on liquidity in wholesale markets and the sharp drop in house prices, which is now at its fastest rate for 25 years, has fuelled a collapse in new mortgage lending, which has fallen to its lowest level in years.

Lenders are expected to withdraw their current tracker mortgages by the end of the day, as they did following the last base rate cut. The new deals launched next week will reflect some of the fall in interest rates, but probably not all of it.

However, Woolwich has not withdrawn its trackers. It is offering a lifetime tracker at 1.99 per cent above base, or 3.99 per cent, for borrowers with a 40 per cent deposit.

Fixed-rates continue to get cheaper and this afternoon Lloyds TSB launched new fixes starting at 3.89 per cent. Lenders are keen to move borrowers on to fixes because of predictions that the base rate could fall as low as 0 per cent next year. However, this means that a tracker mortgage would still be the best option for borrowers about to remortgage, according to mortgage experts.

What will happen to my savings?

The base rate cut is bad news for savers, who have already seen returns drop considerably in the last two months. Last week, Nationwide, Britain's biggest building society, cut the interest rate on its popular Isa product by 1.6 per cent, from 4.2 per cent to 2.6 per cent, reducing the annual return on a £10,000 deposit by £160. The average rate of interest on savings accounts is now below 3 per cent.

If you were lucky enough to lock in to a fixed-rate bond a couple of months ago then your savings will be protected, but everyone else should expect their bank to pass on the 1 per cent cut to their savings.

Savers should be prepared to switch providers to get a better rate of return and possible lock in for a longer period. There are still a number of competitive deals available for new customers. Principality Building Society is offering a 6 month fixed-rate bond with a return of 5.76 per cent, while Anglo Irish still has a one-year bond offering 5.75 per cent interest on deposits of at least £1,000.