Last week saw an unprecedented 1.5% cut in the Bank of England base rate of interest, surprising many city analysts and sending shockwaves through the mortgage market.

The reduction from 4.5% or 3% now means that the BoE base rate is now at its lowest level since 1955 and was widely perceived as the bank's attempts to ease the pressure of the looming recession.

But controversy has surrounded the rate cut and the mortgage lenders have come under intense pressure to pass on the full cut to customers.

Speaking after the announcement, Chancellor Alistair Darling said; "I think it's essential that the banks do pass on the benefit of lower interest rates to people and to businesses,"

"Banks need to understand that they need to help their customers."

However, several banks have hit back at government pressure to pass on reductions whilst others have pulled many of their more favourable products from the market.

Even before the announcement, Abbey raised their standard rate and several other's have hinted that the full rate may not be passed on.

So, what does the rate cut mean for you?

I have a tracker mortgage, surely this is good news?
It certainly is. Provided that your lender passes on the cut, your monthly payments will drop by around £120 a month for every £100,000 of mortgage.

What about fixed rate mortgages?
If you've got a fixed rate deal, you'll be locked in to the current rate until the deal ends. If however, your fixed rate deal comes to an end soon, a tracker mortgage may be a good option to look at when you come to remortgage.

Does this mean that mortgages are going to be easier to get hold of?
Banks are still nervous about lending to each other despite this cut, meaning that getting a mortgage, especially with a high LTV (loan to value) or with a small deposit, is still going to be very difficult for some time to come. It's worth noting that the BoE base rate is not the same as the LIBOR, which is the rate at which banks lend to each other.

Can banks be forced to pass on any rate cuts?
In short, no. The banks themselves will be keen to maintain their own profit margins on any mortgage products that they currently have. Whilst most will, in all likelihood, pass on most if not all of the cut, there is nothing that can force them to do so other than normal market forces.

Surely the government can step in if the bank has been 'bailed out'?
Whilst the government now has a majority stake in several banks, a condition of the bailout is that they continue to operate as a normal business. If that means that the bank cannot pass on the full cut as it would affect their profit margins, then the bank is unlikely to pass on the cut.

I keep hearing about "The Collar", what is this?
'The Collar' is a trade term which relates to tracker mortgages and is effectively a 'cut-off' point at which a mortgage stops tracking against the BoE base rate. Whatever your mortgage's 'collar' is, that's the minimum rate of interest that you will pay, regardless of any further drops in the base rate.
The current base rate is already quite low, meaning that some mortgages may already be at the 'collar' point and, with further cuts expected in the near future, it may be a term that becomes more familiar in the coming months.

A mortgage deal that I was looking at has now been pulled from the market. Why?
Within hours of the announcement, several banks pulled some of their more attractive products from the market and closed any further applications. Revised versions of these products are likely to return, although expect to find a higher 'tracking' rate and a collar included in the small print.

I'm a saver, presumably this is bad news?
Unfortunately so. With most rate cuts, which usually come in 0.25% increments, some banks and building societies can afford to resist the drop in an attempt to stay ahead of the market. A drop of five-times that amount is a completely different proposition and it's inevitable that banks will pass on the drop to savers. There are however, at the time of writing, several banks who have not applied the drop to some products, meaning that there are still some fixed-term savers accounts out there offering 6% AER and upwards. They aren't likely to stick around however so if you are looking to switch your savings, now it the time to do it.