Nationwide today announced a series of rate cuts that will reward homeowners who are willing to commit to long-term mortgage deals.

The UK's biggest building society cut the rate on the nation's favourite mortgage deal - the two-year fixed rate - by 0.15 percentage points but reserved a bigger 0.3 percentage point cut for borrowers wanting a five-year loan.

A remortgagor taking out a five-year loan for £150,000 will now pay £13 a month less, or 0.1 percentage points, than someone on the two-year rate.

All borrowers taking out a two-year loan will also be stung by a higher arrangement fee, up from £499 to £599. Nationwide, however, has reduced fees on five-year fixed rates by £100, from £699 to £599.

Melanie Bien, of Savills Private Finance, the mortgage broker, said: "Nationwide's decision to make the biggest rate reduction on its five-year fix, as well as reducing the fee, suggests that it is trying to tempt borrowers into longer-term fixes. This will help lenders such as Nationwide manage demand: if everyone opts for two year fixes, in another two years there will be a similar situation to the one we have now with thousands of borrowers coming off two year deals. It makes sense to spread the burden by shifting some of these borrowers onto longer fixes."

The rate cuts are the first significant reductions since the Bank of England injected £50 billion into the markets to boost liquidity and came in response to recent falls in swap rates, the rates quoted on the money markets that determine the cost of fixed rate lending. Abbey yesterday also cut the rate on some of its three-year fixed rate deals.

The decision to encourage longer-term borrowing is in line with the Government's view that borrowers fixing for longer will help stabilise the mortgage market.

However brokers gave warning that borrowers should remain vigilant as rate cuts are likely to only apply to a minority of homeowners and could be offset by increases in fees. For instance, Abbey also increased the fee on one deal yesterday by £500.