Interest on fixed rate mortgages at six year low

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The interest charged on two-year fixed rate mortgages fell to a six-and-a-half-year low during February in a further sign that competition was slowly returning to the market, figures showed today.

The average cost of a two-year loan dropped to 3.88% during the month, down from 3.97% in January, to stand at its lowest level since July 2003, according to the Bank of England.

There was also a fall in the average cost of a five-year fixed rate mortgage, with this dropping to 5.49% from 5.56%, while tracker rates increased slightly to 3.69%, although they remained at their second lowest level since records began in 1997.

A number of banks and building societies cut their rates during February, with many launching new best-buy deals in a bid to tempt borrowers to remortgage away from their lenders' standard variable rates.

There was also a big increase in the number of products available for people with only small deposits, as lenders became more comfortable with the risk these borrowers represented.

The number of different mortgage products available also broke through the 2,000 barrier for the first time in more than a year during the month.