The cost of fixed-rate mortgages fell during December as competition in the market began to increase, figures showed today.
The average interest rate charged on a two-year mortgage for someone with a 25 per cent deposit dropped by 0.04 per cent during the month to 4.06 per cent, according to the Bank of England.
The rate was the lowest since May 2009, and well down on both the recent peak of 4.47 per cent seen in September and the 4.77 per cent charged on the average two-year fix 12 months earlier.
There was a similar drop in the average rate for a five-year fixed-rate deal for people borrowing 75 per cent of their home's value, with this falling from 5.71 per cent to 5.67 per cent.
But despite the interest rate cuts seen in 2009, the cost of longer term fixed-rate mortgages remained higher than they had been in December 2008, when they averaged 5.28 per cent.
The falls were driven by an increase in competition in the fixed-rate mortgage market during December, after the cost of the loans had risen steeply during the summer on the back of higher swap rates, upon which they are partially based.
Most of the major lenders cut the interest they charged on fixed-rate mortgages during the month, particularly for people borrowing higher loan to value ratios.
The increase in competition has continued into this year, with financial information group Moneyfacts reporting yesterday that there had been a 7 per cent jump in the number of different mortgages available since January 1.
It also reported a fall in the average interest rates charged, despite swap rates increasing during the period.
But while the cost of fixed-rate mortgages fell during December, the rates charged on tracker deals increased for the second month in a row to 3.91 per cent, up from 3.89 per cent in November.
However, the cost of tracker deals was still just over 1 per cent lower than it was in December 2008, when the average rate stood at 4.92 per cent.
The cost of credit card borrowing continued to increase during December, with lenders hiking their rates from an average of 15.89 per cent in November to 16.28 per cent.
The interest charged during the month was the highest average rate since September 2006, and considerably higher than the 15.58 per cent seen in December 2008.
Rates for people borrowing £10,000 through personal loans remained at 11.08 per cent, up from 9.3 per cent a year earlier and the highest level since August 2002.
Interest charged on a £5,000 loan also rose by more than 1 per cent during the year, climbing from 12.08 per cent to 13.38 per cent, while average overdraft rates rose from 18.04 per cent to 18.96 per cent.
The figures contained little cheer for savers, with the average rate paid on a branch-based instant access account remaining close to its recent record low at 0.17 per cent, while interest on notice accounts dropped by 0.03 per cent to 0.31 per cent.
Returns paid on fixed-rate bonds, currently the most competitive area of the savings market, fell for the fourth month in a row, dropping to 2.51 per cent, down from a recent peak of 3.05 per cent in August last year.
Tax-free ISA rates have also fallen steeply during the past year to average just 0.41 per cent in December, down from 2.1 per cent in the same month of 2008.