Many homeowners are set to see hundreds of pounds knocked off the annual cost of their mortgages.

The reductions will come as lenders recalculate interest rates to take into account last year's cuts.

Borrowers with annual review mortgages are set to see repayments on a £60,000 mortgage fall by up to £76 a month as they benefit from the two per cent drop in interest rates seen during last year.

Annual review mortgages, which are offered by some of the UK's major lenders including Halifax and Nationwide, set the rate at which a loan is repaid at the beginning of the year.

The rate does not move with interest rate cuts or rises but is recalculated at the end of the year to take them into account, with some lenders deducting the amount customers have overpaid due to rate changes from the sum they owe.

The mortgages were popular during periods of interest rate volatility as monthly payments stayed the same throughout the year, helping people to budget.

The majority of lenders review rates for these mortgages between the beginning of January and April.

Cheltenham and Glou-cester said borrowers on its Annual Instalment Review Scheme would see their mortgage interest rate fall to 5.95 per cent from March 1, after being 7.50 per cent since March 2001.

The reduction will knock almost £60 off monthly repayments on a £60,000 mortgage, reducing them to £388.92 from £448.55 during the previous year.

Halifax is waiting for the results of this week's meeting of the Monetary Policy Committee before it sets the rates for its Budget Plan mortgage for the year from April 1, 2002.

But the group said if interest rates remain at four per cent, borrowers would see a significant reduction of about two per cent, with their rate coming down from 7.74 per cent to around 5.75 per cent.

Nationwide is set to reduce the rate for people with an annual review option on their mortgage from February 1 to 4.74 per cent compared with 7.09 per cent in February last year.