Nationwide Building Society will not pass on any further interest rate cuts to the majority of its tracker mortgage customers, it said today.
The lender plans to invoke a clause enabling it to stop reducing the loans in line with cuts to the Bank of England base rate once official interest rates fall below 2%.
It said the move, which will affect more than 250,000 customers, was to protect its savers from further aggressive rate cuts.
The so-called collar on the majority of the group's mortgages was supposed to kick in when the base rate fell below 2.75%.
But Nationwide decided to waive the clause last month, passing on December's 1% reduction in full.
A Nationwide spokeswoman said today: “Savings rates are at an historic low and this move means we will not be forced into a position where we could have to cut savings rates more aggressively than we would otherwise like to.”
The group slashed its savings rates by up to 1.1% following December's base rate reduction, with returns on savings accounts cut by an average of 0.87%.
The Nationwide is offering no guarantee that rates will not be reduced further going forward.
But the decision to invoke the collar on its tracker mortgages is likely to anger the Treasury, which has called on banks and building societies to pass on base rate reductions to their customers.
A Treasury spokesman said: “The Chancellor has repeatedly made clear that he expects lenders to do their best to help their customers through these difficult times.”
The Bank of England's Monetary Policy Committee holds its next interest rate setting meeting next week, when it is widely expected to slash rates by at least a further 0.5%, with some pencilling in a 0.75% cut.
A 0.5% reduction would have saved borrowers with a typical £150,000 mortgage around £40 month if it was passed on in full, while a 0.75% one would have knocked £60 off monthly mortgage repayments.
Nationwide's decision will only affect tracker customers with a 2.75% collar, people who took out one of the loans since November have a lower floor of 1%.
Some loans in the group's existing tracker book have rates of 0.76% below base rate, giving a current pay rate of just 1.24%.
The group said it would stand by its pledge that its standard variable mortgage rate (SVR) would never be more than 2% above the base rate.
Its SVR currently stands at just 4%, meaning that the group will have to pass on any further interest rate cuts to customers on the deal in full.
Britain's biggest mortgage lender Halifax also announced in December that it would not be exercising an option on its tracker mortgage under which it no longer has to pass on all or any reduction once the base rate fell below 3%.
The Halifax move followed speculation that City watchdog the Financial Services Authority could force the group to pass on the cut as borrowers had not been made aware of the clause when they took out their mortgage.
A number of other lenders, including Skipton and Yorkshire Building Societies, also have collars that kicked in when the base rate fell below 3%.
Meanwhile the Nationwide has fixed a glitch in its system that left salary payments missing from some of its customers' accounts.