The recent drop in the base interest rate to 3% announced by the Bank of England provided a welcome piece of good news for the financial markets and businesses generally.

However, as yet, the full impact of this reduction is yet to be felt in the world of mortgages, as lenders have reacted with caution.

Although those homeowners with existing mortgages have to some extent benefited from the reduction in rates, buyers looking for new deals have found the situation more challenging.

Put in context, someone with the average UK mortgage of £180,000 would now be saving around £200 a month, which is a sum not to be sniffed at.

But even so, rates for individual borrowers vary widely according to their personal financial circumstances, and there remains limited choice for those new borrowers with only small deposits at their disposal.

However, buyers who can raise a deposit of 25% or more of the purchase price of their prospective home are able to pick and choose to a far greater extent from a wider range of mortgage products and there are now some very good deals to be had.

The banks’ reticence to lend to homeowners across the board is a knock-on from the fact that they are still unwilling to lend to each other and it is relatively expensive for them to do so.

Although base rates dropped, banks use the Libor (London Interbank Offer Rate) to set the interest rates at which they lend to each other.

This does not equate to the Bank of England’s base rate, but is usually set a little higher. Currently, it stands at 4.5% and this will be reflected in the mortgage rates which are on offer.

Unlike mortgage interest rates, which are relatively long-term, the Libor rate is set for three months and has the potential to change. Consequently, it has a level of uncertainty built into it and is used as a tool in the process of predicting just where the financial markets are heading.

As a result, a reduction in base rates cannot be an instant fix, but simply a step in the right direction — which could go some way to restoring confidence in the banking world and the economy as a whole, and this will then benefit mortgage holders.

Local agents have given mixed reactions to the lower base rate, while generally welcoming the cut. Particularly if further rate cuts follow, it could be just the impetus the housing market needs to kick-start a recovery, albeit not in the most immediate future, they say.

Richard Oldaker, branch manager of Townends Aldershot: “The cut, which was most welcome, has been positively received, although many prospective purchasers are poised to see if the rates are going to be passed on.

“House prices in Aldershot are as competitive as they have been for years and represent great value for money.

“I believe we still need to see mortgages available at better rates, even at a 90-95% loan-to-value, to encourage first time buyers back into the market. So far, it has, in the main, only been customers with substantial deposits who’ve seen benefits from these reductions.”

Michael Usher, director of Michael Usher Mortgage Services: “The remortgage market has taken a turn for the better and many lenders have passed the rate cuts on to their customers. It’s very good news for people coming off fixed rate mortgages on to variable ones.

“Many lenders are revisiting their fixed rate mortgages, but are not offering very good trackers — in fact, many high street lenders are not offering trackers at all. At the moment, the Woolwich, Halifax and Abbey are offering them and at good rates, but you need to have a decent deposit.

“I think we’ve had some good rates for the last few years and we’re now in a correction zone. It’s our job as mortgage brokers to find the best deals for our clients.”

Greg May, director of Flower Independent Financial Advisers: “The recent interest rate cuts will, hopefully, bring some relief to the consumer.

“However, affordability of housing is still a key issue and not since 1987 has the level of mortgage required as a percentage of income been so high.

“While the average age of the first-time buyer has not increased significantly in 30 years, the amount they have had to borrow to get on the housing ladder has.

“This should reduce as the market continues to correct itself.

“The banks and mortgage lenders are definitely making it more difficult to qualify for a mortgage and this is likely to continue through 2009.

“Buyers risk not qualifying for a mortgage at all or being tied into expensive deals if they make the wrong mortgage decision, so choosing the right adviser who understands the market is vital if this is to be avoided.”

Richard Partridge of McCarthy Holden: “The new rate will put stability in the market. It’s good that money isn’t so freely available because it was that which led to the situation in the first place.

“Now that people can’t borrow such large sums, house prices have been brought in line with salaries.

“There are still people who want to sell and still people who want to buy. The same factors are driving this as always such as a growing family, divorce, retirement and so on. In fact, we need more vendors because there aren’t enough houses available.”

Mark Kirby, new homes specialist at Bridges: “Any reduction in the rates is a positive thing, but at the moment the rates aren’t being passed on sufficiently.

“One problem for buyers is that some lenders are taking the price of any incentives offered by developers, such as carpets, white goods and so on, off the value of the property.

“They take the view that the developer has built this into the house purchase price, giving the property an inflated value, and so they are unwilling to lend on that sum.

“Some developers are still offering special deals, such as shared ownership and shared equity, but I don’t know how long these will continue to be available.

“For first time buyers, the biggest hurdle is that of the deposit. If you’ve only got 5%, there simply aren’t enough products around, but if you’ve got as much as 40%, there are some excellent rates out there.”

Richard Day, manager of Hamptons’ Fleet office: “The 1.5% cut stunned the financial markets and resulted in many tracker rates being withdrawn.

“The lenders were fearful that the Libor rate wouldn’t budge and the cost of borrowing funds would prevent them from being able to pass on the reduction in their new mortgage products.

“The following day, however, saw Reuters reporting the Libor rate falling to its lowest level since May 2004.

“Our mortgage brokers are seeing rates come to market below 5%. Not only will existing borrowers on tracker rates see a real helping hand at this time, we are already seeing new buyers registering as they will reap the benefits of lower repayments, too.”

Russell Mitten, managing director of Carsons: “While new mortgage customers might have to wait a short while to see how this reduction benefits them, we’re seeing encouraging signs from high street lenders.

“They have dropped their rates by up to 1.5%, which will substantially reduce a number of homeowners’ monthly repayments.

“This news is a positive step towards us seeing an upturn in the market. Reduced house prices combined with lower interest rates make this an excellent opportunity for would-be home buyers.”

Simon Masters, manager of Mann and Co’s Ash Vale office: “We’ve already seen a big impact to the rates reduction in the number of people responding to adverts and going out on viewings, and new mortgage appointments are on the up.

“Lenders are passing on savings to new customers and the confidence factor is creeping back in.”