Cuts! Glorious cuts.  And that's despite no change in the base rate.

Woolwich was the first lender to announce it is dropping certain key rates, and Northern Rock and Abbey followed close behind.

They're not stingy cuts, either.  Interest on the Woolwich Lifetime Tracker mortgage for borrowers with up to 70 per cent loan to value (LTV) will drop nearly half a percentage point to 2.79%. That's still 2.29 per cent above base rate (see our previous notes of caution about trackers), but even so, for now that's a best-buy tracker for many. Alternatively, if the £995 fee puts you off and you're borrowing under 75 per cent LTV, there's a no-fee lifetime tracker available at 3.19%.

Northern Rock's cuts are less steep but it has managed to match Woolwich's 2.79% tracker mortgage rate.  This, however, is on a two-year deal not a lifetime deal. It asks for a smaller fee of £595.

Abbey, not quite matching the others' leading rates, launched a two-year tracker mortgage at 2.94% for borrowers with a 30 per cent deposit and a £995 fee. At the same fee level and LTV limit, Abbey also cut the rate to 3.88% on its 2-year fixed rate mortgage. All Abbey's deals are available through Alliance & Leicester branches as well as its own (and, of course, through mortgage advisers). 

HSBC hasn't reduced any mortgage rates (yet) but it did slightly pre-empt this flurry of cuts with its recently-extended 1.99% deal. 

Biggest cut of the day is the 0.6 per cent sliced off certain deals in Northern Rock's buy-to-let mortgage range. With fees of up to 2.5 per cent of advance, its lowest rates aren't ideal for everyone, but it does provide a no-fee buy to let mortgage at 7.39% fixed for two years (up to 70 per cent LTV). Serial investors also appreciate its £3 million, 10-property portfolio limit.

So, competition heats up among the big (non-bailout) boys – Santander, Barclays and HSBC – and Northern Rock is making aggressive moves again, notably on fees (an overlooked area of mortgage affordability).  Will smaller lenders be prompted to trim their lending rates too? Or will they compete on other factors, such as loan to value?  Watch this space.

Woolwich is keeping up its rivalry with HSBC by offering a new fee-free tracker at 3.19% (2.69% over the base rate).

Parent company Barclays is keen to take on its fellow High Street giant, whose First Direct and HSBC-branded tracker mortgages have been topping many "best buy" tables for much of the year.

The new tracker mortgage, although 0.4% more expensive than its lowest-rate tracker at 2.79%, has an advantage that will appeal to many cash-pressed remortgagers and buyers: it costs nothing to apply.  

Compare that to the £999 fee for Woolwich's cheapest deal and the £1,199 for the HSBC 1.99% tracker and you can see why, in the short term at least, this deal has enough appeal.

And for a tracker with nearly a three per cent premium over base, yes, we'd be thinking short-term. 

Andy Gray, Woolwich head of mortgages, points out that tracker mortgages are attracting strong interest due to "the combination of rock-bottom, stable base rates and an increasingly competitive market".

Competitive it is, but so far it's mostly been a direct battle between Barclays (Woolwich) and HSBC.  We'll wait to see who else enters the fray! 

Woolwich is now the second mortgage lender to offer a rate below 2%.

(Do you suppose parent company Barclays was envious of the headlines attracted by High Street rival HSBC?)

The new Woolwich mortgage deal is called the Step Tracker. Its headline starting rate of 1.98% is available to borrowers with 40% deposit or current equity in their property.

But with a rate this low you'd expect a catch, and yes, there's a substantial one. The discounted tracker rate – 1.48% on top of Barclays Bank Base Rate (BBBR) – only applies for the first year.  After 12 months, it reverts to a lifetime rate of BBBR plus 2.49%. There's also an Early Repayment Charge (ERC) for the first three years, requiring you to pay two per cent of the sum outstanding if you re-mortgage during that period.

If the base rate stays at 0.5%, you'll be paying an overall rate of 2.99% which seems reasonable.  However, base rates are only likely to move in one direction: upwards.  If base rates were to return to – say – 3%, you'd be paying 5.98% interest on your mortgage.

A further sanction: this deal is only available to those borrowing £200,000 or more.  With the ERC at two per cent, this means most borrowers would be paying over £3,000 in fees if they wanted to exit the mortgage early.

If you don't want this risk, you'll be pleased to hear Woolwich has cutits fixed rates as well.  A two-year fixed rate deal for people with 30 per cent depositis now 3.99 per cent.  If you'd prefer a three-year fix, the rate is 4.49per cent.

Our assessment of the 1.98% Step Tracker?

Woolwich has done a lot of manipulation in its quest for a headline rate.  HSBC's 1.99% deal was equally crafty in a different way, with its high application fees and equally selective criteria, but Woolwich has made sure its juicy low interest deal only launches to a slender segment ofpotential borrowers.  We're not convinced it will really appeal to that segment either: looking forward to 2012, we'd rather anticipate being on a 4.49% fixed rate than risking a high interest trap with that tracker!