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Several lenders made significant cuts to their rates, although borrowers still need substantial equity in their homes to qualify for the best deals. Some of the rate reductions would save home owners about £30 a month on a typical mortgage.
Nationwide Building Society has cut rates by as much as 0.4 of a percentage point. The cost of its five-year fixed-rate cut deal for those with a deposit of at least 30pc is falling from 3.79pc to 3.39pc, although the fee is rising to £999 from £549. The rate on its two-year fix, for deposits of 40pc or more, is falling by 0.3 of a percentage point to 2.99pc, with a £999 fee.
Barclays, meanwhile, is dropping the cost of its five-year fixed rate for 30pc equity by 0.3 percentage points to 3.99pc, and the two-year rate for 40pc equity by 0.2 percentage points to 3.09pc. These deals come with a £999 application fee.
The bank is also offering a market-leading two-year fixed mortgage at 3.29pc with no application fee, although customers will need a 30pc deposit to take it up.
Rachel Springall of Moneyfacts, the comparison website, said: "The new two-year fixed deal from Barclays at 3.29pc is the lowest rate on the market at 70pc loan-to-value."
Halifax also joined in, with some rates being cut by as much as a fifth of a percentage point, while Chelsea Building Society has tweaked some rates downwards.
"The mortgage rate war is well under way," said Mark Harris, the head of SPF Private Clients, the mortgage broker.
Michael Ossei of uSwitch.com said the battle for customers was "really starting to kick off" among longer-term fixed-rate deals. "There is a great deal of appetite for longer-term fixed-rate deals," he added. "Lenders are starting to wise up to what borrowers are looking for and are finally giving them what they want."
The moves follow HSBC's launch earlier this month of a five-year fix at a record-low rate of 2.99pc, for 40pc deposits and with a £1,499 fee. Santander responded last week with a similar deal for existing customers.
"The move by HSBC a couple of weeks ago has sparked others to reconsider their fixed-rate mortgages," said David Hollingworth of London & Country, another broker.
Lenders are able to cut fixed rates because costs on the wholesale market have also been falling.
There are hopes that lenders' new appetite to compete for business, and a new government scheme called Funding for Lending to provide low-cost funds to banks, will put some life into the property market, which has been bumping along the bottom for some time. Figures from the British Bankers' Association this week showed that mortgage approvals for house purchases were at their lowest level since January 2009 and a fifth lower than a year ago.
Rates could fall further still. Mr Hollingworth said: "The trend looks set for fixed rates to drift down further." But there is a limit to how low they will go. Mr Harris added: "There is a natural floor below which fixes won't fall – assuming Bank Rate stays at 0.5pc, fixes are unlikely to fall much below 2.5pc."
If they did, he explained, they would start looking cheaper than variable rates, whereas "the whole idea of a fix is that you pay a premium for the security that a fixed-rate offers".
With many economists expecting Bank Rate to remain at 0.5pc for the foreseeable future, is there any point fixing your rate at all? Mr Hollingworth said: "Of course, one of the reasons for the fall in fixed rates is that the markets expect Bank Rate to remain static, which of course means that a tracker rate could look like a very attractive option.
"However, I think many borrowers still feel that they wish to guard against all the uncertainty in light of the continuing recession. The more attractive fixed rates become, the more likely they are to be attracted to the safety-first approach."
Adrian Anderson of broker Anderson Harris warned against fixing your rate for too long, however. "While these falling fixed rates are great news for borrowers looking for extended security, make sure you don't fix for longer than you are absolutely sure about," he said.
"Otherwise you'll be hit with hefty early repayment charges when you try to exit, particularly as porting a mortgage [taking it with you when you move] is so much more difficult these days.'
First-time buyers still face an uphill struggle, despite the spate of rate cuts. If you have a deposit of 5pc, you will pay hundreds of pounds a month more than borrowers with more substantial equity.
"If you have only a 5pc deposit, for example, you will pay an extra 3 percentage points on a five-year fixed-rate mortgage compared with someone with 40pc," Mr Harris said, comparing a 5.99pc deal from Leeds Building Society with HSBC's 2.99pc offer.
On a £150,000 mortgage, this works out at an extra £375 per month, as the HSBC costs £374 per month compared with £749 a month with Leeds, he calculated. "Over the five years of the fixed rate, you would pay an extra £22,500 for having a smaller deposit – practically double what the home owner with the bigger down payment would pay."
He said there were some signs of hope for first-timers, however. "Although it is still too early to say for sure, the Funding for Lending scheme should have a positive impact on the availability and pricing of low-deposit deals.
Increased levels of lending to those with modest deposits would boost the market, and the early
signs are encouraging, with RBS reducing its five-year fixed rate to 4.79pc for those with just a 10pc deposit."
signs are encouraging, with RBS reducing its five-year fixed rate to 4.79pc for those with just a 10pc deposit."
But he added: "It is important not to get carried away. While rates might ease, lenders still have constraints on their capital and liquidity, so those expecting rock-bottom rates and a plethora of low-deposit deals are likely to be disappointed."
