Mortgage rates continued to fall during October as lenders tried to tempt homeowners to remortgage, figures showed today.
The average cost of a tracker loan fell for the third consecutive month to hit a new record low of 3.5%, according to the Bank of England.
Interest rates charged on two-year fixed rate mortgages for people with a 25% deposit dropped to 3.72%, the second lowest level since records began in 1995, while the typical cost of a five-year fixed rate mortgage fell by 0.19% to a five-year low of 4.85%.
The decline in mortgage rates came despite the fact that swap rates, upon which fixed rate loans are partially based, ended the month slightly higher than they started it.
Instead, the fall is thought to have been driven by increased competition among lenders, who are trying to tempt homeowners to remortgage off low standard variable rates (SVRs).
A number of lenders have launched deals in recent weeks that are specifically aimed at people who are remortgaging.
Michelle Slade, spokeswoman for financial information group Moneyfacts.co.uk, said: "We are seeing a bit more competition back in the market as lenders want to do more lending.
"They are trying to kick-start the remortgage market. Many people are on low SVRs and have no reason to move."
But despite the recent decline in mortgage rates, the cost of home loans still remains high in relation to both the Bank of England base rate and swap rates.
Swap rates had been steadily falling during October, but rose sharply towards the end of the month following stronger than expected third quarter GDP data, which prompted speculation that interest rates may rise sooner than previously expected.
Five-year swap rates were 2.09% at the end of September, falling to 1.99% on October 21, but spiking to 2.21% on October 26 following the GDP data, before declining again to end the month at 2.13%.
Anecdotal evidence from estate agents also suggests that many potential buyers are still struggling to obtain the mortgages they need, with lenders continuing to reserve their best deals for people with large deposits.Reuse content