AVERAGE MORTGAGE RATE LOWEST FOR NEARLY SEVEN MONTHS – Average rate had fallen from 5.92% to 5.87% in a day

The average rate on a two-year fixed mortgage has fallen to its lowest level for nearly seven months as lenders compete for custom.

Financial information service Moneyfacts said the average rate had fallen from 5.92% to 5.87% in a day.

Major lenders, such as Halifax and HSBC, have begun the year with rate cuts to keep hold of customers, as their own funding costs have dropped.

More reductions are expected, but many homeowners still face rising bills.

Mortgage rates will remain higher than many people have been accustomed to because of significant changes over the past two years.

The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which are very expensive – with an average rate of more than 8%.

However, the UK’s biggest lender, the Halifax, started the year by reducing the rate on some of its mortgage products by nearly one percentage point.

Others have followed suit such as TSB, First Direct and NatWest which will make cuts to some products on Friday, and more are expected to join them with reductions – although not every product will see such large falls.