You might expect news that the Bank of England has cut interest rates by a staggering one and a half points to be met with whoops of delight from borrowers. But in spite of this being the largest cut ever implemented by the Monetary Policy Committee, bringing the base rate to its lowest level since the 1950s, new mortgages are still not getting much cheaper.

The problem is that as banks have rapidly expanded their lending businesses and become less reliant on money from savers, the rate at which they borrow has become dislocated from the base rate. Lenders can't afford to offer mortgage rates at or close to the 3 per cent base rate while their own borrowing costs are still much higher. Banks' costs did fall sharply at the end of the week, but while bad debts are still rising, their confidence to lend to each other is not likely to return to pre-credit crunch levels. And so mortgage rates are likely to remain at a considerable premium to the base rate.