The ACC has followed TSB in cutting fixed mortgage interest rates, announcing a 0.6 percentage point reduction in its One Year Fixed Home Loan Rate from 6.75 per cent to 6.15 per cent (7.5 per cent APR).

According to the bank, this would mean that the monthly cost per £1,000 over a 20-year term would be £7.23. The monthly cost per £1,000 on the standard mortgage rate of 7.45 per cent (7.7 per cent APR) is £8.

ACC also introduced a three-year fixed rate of 6.45 per cent (7.4 per cent APR), working out at £7.40 a month per £1,000 on a 20-year term.

A spokesman for ACC said yesterday that the one-year and three-year cost of funds had dropped in recent times.

"We would expect them to drop a bit further as we approach May and decisions are made about EMU.

"Certainly there is an expectation that they could drop by one per cent. But if that does not happen for six months, people would probably benefit from fixing the first year at a lower rate," he said. He added that "as of now" the rates were competitive and potential purchasers were not advised to hold off in the expectation of rates dropping further.

"Rates may drop a bit further but, on the other hand, if house prices go up in the meantime, it would be a bad idea to hold off," he said. This week the Construction Industry Federation predicted that the rate of increase of house prices would slow down. On Monday TSB announced the cutting of its one-year fixed rate, also to a 7.5 per cent APR, reducing its rate by 0.25 of a percentage point to 5.95 per cent.

Its variable mortgage rate has remained at 7.4 per cent (7.7 per cent APR).