Halifax, Britain's biggest lender, has vowed to pass on only a 0.25 percentage point cut in interest rates to borrowers on its variable-rate deals.

The Bank of England dramatically reduced interest rates by 1 per cent today in a desperate bid to thaw the freeze in the mortgage market and boost the fortunes of Britain's homeowners. The base rate is now at its lowest level for 57 years after falling to 2 per cent.

However, Halifax will only cut its standard variable rate (SVR) by 0.25 per cent, to 4.75 per cent, from January 1. It said that it had "balanced the interest of its customers with the commercial imperative of managing its business in a sustainable and prudent fashion."

Aaron Strutt, of Chase de Vere Mortgage Management, said: "When Britain's biggest lender doesn't pass on the full cut it raises serious concerns that other lenders are now likely to follow suit."

Millions of borrowers on tracker deals will automatically benefit from today's interest rate reduction because their mortgage is pegged to the falling base rate. A borrower with a £150,000 interest-only mortgage will see their monthly mortgage bills fall by £125.

Halifax, Britain's biggest lender, announced this morning that it would not enforce a lower threshold, or "collar", on its tracker mortgages, which would have prevented rates from falling if the base rate dropped below 3 per cent. It means that around 550,000 borrowers with a Halifax tracker will benefit from today's cut in full.

Its move followed the intervention of the Financial Services Authority. The City watchdog warned Halifax that the collar might not be enforceable because it was not included in an important mortgage document given to homeowners when they sign up to a new deal, known as a Key Facts Illustration (KFI).

Another 600,000 borrowers on tracker deals from several building societies, including Nationwide, Skipton, Yorkshire and Norwich & Peterborough, will be prevented from benefitting from today's cut.

Meanwhile, about one million borrowers on variable-rate deals will have to wait to find out if their lenders will pass on the cut.

Only four other banks have announced that they are cutting variable rates in response to the Bank of England cut today. HSBC, Lloyds TSB, Barclays and Bristol & West are all passing on the full 1 per cent cut to their SVRs.

Andrew Montlake, of Cobalt Capital, a broker, said: "The pressure is now on the banks to pass on this cut in full. However, today's cut will be a tonic to thousands of people on variable and tracker mortgages."

HSBC is lowering its SVR from 5.44 per cent to 4.44 per cent. Lloyds TSB and Bristol & West, owned by the Bank of Ireland, have also announced it is passing on the cut. Woolwich, the mortgage brand of Barclays, will lower its SVR by 1.15 percentage points to 5.49 per cent from January 1 because it did not cut rates after the Bank of England's historic one and a half point reduction last month.

The Council of Mortgage Lenders (CML), an industry trade body, has already warned that other lenders are more likely to follow the lead set by Halifax and make smaller cuts in order to protect their balance sheets.

Michael Coogan, director general of the CML, said: "Not all lenders are the same and it is not realistic to expect them all to react in the same way to the rate cut — although where they believe they can cut mortgage rates, they will.

"Lenders are trying to achieve a range of potentially conflicting objectives at the same time. They are simultaneously trying to build up greater levels of capital and liquidity, help borrowers in difficulty and reduce repossessions, keep rates as low as possible for borrowers and as high as possible for savers in a very low interest rate environment, support new lending, and pay the significant costs of the recapitalisation scheme which have fallen across a wider range of lenders than just the recapitalised banks themselves."

Meanwhile, lenders have begun pulling tracker deals for new customers in an effort to protect their profit margins. Alliance & Leicester, Abbey and Halifax are withdrawing their tracker deals by the end of the day. Lloyds TSB pulled its deals last night. It was offering new trackers pegged at 1.99 above base, or 3.99 per cent.

The best two-tracker still available this afternoon is from Northern Rock, at 1.99 per cent over base, or 3.99 per cent, for borrowers with a 35 per cent deposit. However, it is not likely to be around for long.