THOUSANDS of homeowners across the North-East will be shopping for cheaper mortgages after Britain's two biggest mortgage lenders slashed their rates and sparked a price war yesterday.

Nationwide building society started the battle by cutting its standard variable rate from 7.09 per cent to 6.49 per cent.

Then the Halifax hit back with a reduction in its base mortgage rate from 7.5 per cent to 6.75 per cent, saving homeowners with a £60,000 interest-only mortgage about £450 a year.

Last night, North-East mortgage lenders were gearing up for a price-war with many, including one of the biggest lenders, Northern Rock, considering a review of their services.

Analysts said the price war was bound to fuel the rapid growth in North-East houseprices, which has seen some properties more than double in value.

Fashionable addresses, such as Durham City and Newcastle's Quayside, are now experiencing the sort of growth similar to homes in the South-East.

Lee Smurthwaite, of estate agents Stuart Edwards in Darlington, said: "We're finding that all the traditional hot spots are increasing at a greater rate such as in Durham City, the West End of Darlington and surrounding villages like Hurworth.

"Five years ago, a three-bedroom semi in Darlington's West End would have cost you £67,500, but today it's about to break the £100,000 barrier.

"It's down to a ripple effect - the house price boom in the South has spread to the North-East. It's also demand and fashion led.

"People seem to be more affluent or taking out bigger mortgages, possibly because of the period of interest stability over the past few years."

Craig Armstrong, financial services manager with Gordon Brown Associates in Chester-Le-Street, County Durham, said the mortgage battle could see thousands in the region rushing to re-mortgage their homes.

"The days of dressing up in your best clothes and going to the bank manager to beg him to organise a mortgage for you are long gone," he said.

"I think the price war is mainly due to the fact that the public are becoming that bit more aware now of the best mortgage deals.

"The lenders are doing a bit of shadow boxing and are just waiting to see what the others are doing and trying to get one up on their competitors."

But he dismissed a return to the boom and bust years of the 1980s and early 1990s.

"I think the Government, mortgage lenders and the industry are very wary of boom and bust and have learnt from their mistakes," he said.

The Halifax, which also unveiled an eight per cent rise in full-year pre-tax profits, said it would move to charging daily interest on mortgages from next month for new customers and introduce a new low-cost "Halifax Variable Rate".

Chief executive James Crosby said: "The battle is now on for the hearts and minds of the consumer. It's a battle the Halifax is determined to win."

The Nationwide's rate will be available to both new and existing borrowers, a move the lender said would highlight the way present customers were often penalised in the scramble to attract new business