Mortgage rates fall to new low

The cost of short-term fixed-rate mortgages fell to a new record low in May as competition continued to return to the market. The average interest rate on a two-year fixed-rate deal for a borrower with a 25 per cent deposit dropped to 3.8 per cent during the month, according to the Bank of England.

Rates have been falling since September, when they reached 4.47 per cent, and are at their lowest level since the Bank's records began in 1995. There was also a fall in five-year fixed-rate mortgages for people borrowing 75 per cent of their home's value, with these dropping to 5.39 from 5.5 per cent in April, to stand at their cheapest level since May last year. Tracker mortgages also fell, to 3.7 from 3.79 per cent in April.

However, analysts said rates were not yet low enough to tempt people who were sitting on their lender's SVR, some of which are just 2.5 per cent, to remortgage.