Green shoots of competition in the mortgage market

The early signs of a price war are finally beginning to emerge in Britain's struggling mortgage market, as several of the country's largest lenders have begun to introduce new and competitive deals over the past few days.

Royal Bank of Scotland and NatWest shrugged off the collapse in their share price last week, when they launched a new range of tracker and fixed rate mortgage products, the cheapest of which is the bank's cheapest ever mortgage deal. RBS's two-year fixed rate mortgage is priced at 3.49 per cent – undercutting most of its competitors. The bank has also reduced its fees significantly – offering a range of mortgages with fees of just £299.

Earlier in the week, Abbey reduced a number of its fixed and tracker rates, as did Alliance & Leicester. While earlier in the month, HSBC and Halifax both began offering two-year fixed rate deals of under 3 per cent for customers who bank with them – although these deals are only available to those borrowing 60 per cent or less of their property's value. Nevertheless, the latest round of rate cuts appear to be introducing more competition to the market for homebuyers who need to borrow up to 75 per cent of a property's value.

"Lenders have been introducing cheaper fixed-rate mortgages in recent days on the back of a significant drop in the cost of funding in the wholesale markets," said Melanie Bien, a director of the independent mortgage broker Savills Private Finance.

"Fixed rates are now extremely attractive but you still need a 25 or 40 per cent deposit or equity to qualify for the cheapest deals. There is little choice for those with a 10 per cent deposit.

"Fixed rates will continue to look cheap in coming weeks but it is unlikely they will fall much further. Lenders are concentrating on margin rather than market share, and being fussy about who they lend to."

For those with no more than a 10 per cent deposit, the best rates are still well above 5.5 per cent – some 4 percentage points above the base rate.