Nationwide Building Society today injected some much-needed cheer into the gloomy mortgage market after cutting a number of its home loan deals by more than a quarter of a percentage point.

The lender today announced that its two-year tracker rates will fall by up to 0.27 percentage points from next Wednesday.

Halifax, the UK's biggest lender, retaliated by announcing that it will cut its trackers by an average of 0.12 points.

However, Halifax will also increase the cost of fixed rates by 0.23 points on average from tomorrow, while Nationwide said it would reduce its two-year fixed rate mortgages fractionally by 0.07 points.

The building society's biggest cuts were reserved for the safest borrowers, with at least 25 per cent equity.

Borrowers seeking loans for up to 90 per cent of their property's value, who had previously been denied rate cuts, will see borrowing costs fall by a much less significant 0.07 points.

However, Nationwide's cuts only extended so far.

Homeowners with only a 5 per cent deposit have been denied a reduction altogether.

Nationwide added almost £1,000 in arrangement fees for its lowest-rate tracker deal, which will now cost borrowers a hefty £1,499 to take out.

Previously Halifax, the country's largest mortgage lender, also increased its arrangement fees by £1,000 to £1,499.

Arrangement fees on mortgage deals have reached new heights since the credit crunch, with some lenders charging as much as £10,000 to set up a mortgage for up to £500,000.

Commenting on Nationwide's reductions, brokers said it was a positive sign for those borrowers with small enough loans, despite the higher fees, but still left out those with bigger borrowings.

Aaron Strutt at Chase De Vere Mortgage Management, said: "Since the whole liquidity crisis started, rates have only gone up, so it has to be good news that finally some of them are coming down and even with fees they look competitive. It shows that lenders are still willing to lend, albeit only to the right people."

Nationwide's decision to cut tracker rates was mirrored by some other lenders - Abbey will today cut its tracker rates by up to 0.20 percentage points for borrowers with 25 per cent equity, while Birmingham Midshires is expected to cut some rates by up to 0.4 percentage points next week.

However, other lenders continued to increase fixed rates.

Intelligent Finance, part of the HBOS group, has cut its offset tracker rate by 0.1 point, but raised its fixed rate by the same amount.

Trackers, which exactly follow movements in the Bank of England base rate, shot up in response to the credit crunch on the back of expectations that the Bank of England would have to cut base rates, however they have become better value as the prospect of a base rate cut has become less likely.

Matthew Carter, director for mortgages at Nationwide, said: "These price changes reinforce our message that despite tougher market conditions, we remain very much open for business."