THE mortgage war between British mutual building societies and rival shareholder banks and building societies is intensifying.

Nationwide Building Society due to become the largest mutual after the Halifax converts into a shareholder owned entity, has cut its mortgage rate to just under 7 per cent, the lowest British mortgage rate in 30 years.

The new Nationwide rate, which takes effect in April, is just over half of 1 per cent below the standard mortgage rate of most rivals. It will produce £190 sterling in savings for borrowers with a standard £60,000, 25 year mortgage.

Rival lenders were caught on the hop by Nationwide's rate cut. Other mutual building societies are expected to follow Nationwide but shareholder banks and societies will have to budget for lower profits, if they follow suit.

Nationwide also surprised the savings market by disclosing plans to raise its deposit rates for savers by 0.25 per cent in a move designed to increase its savings inflow. Overall, the combined costs of lower borrowing costs and higher savings rate will cost an estimated £200 million.

If all lenders did the same, around £2 billion would flow into the economy equivalent to a lp cut in income tax.