Interest rates on short term fixed rate mortgage deals have fallen to a record low, according to new figures from the Bank of England.  The average cost of a two year fixed rate mortgage in the UK was 3.45 per cent in May, down 0.19 per cent from April.  It is the third consecutive month that mortgage and remortgage rates have fallen.

Best buy deals on two year fixed rate mortgages are now just over 3 per cent; a record low.

Receding likelihood of Base rate rise driving rates down

Falls in swap rates – the rates at which banks lend to one another – have led to the reduction in the price of mortgage products.  With the Bank of England unlikely to raise the Base rate until late 2011, the cost of borrowing on the money markets has fallen, and lenders have passed on these reductions to borrowers.

The Independent reports that ‘the downward momentum on mortgage rates appears to have continued into June, with a flurry of lenders slashing their rates during the past few days, including big names, such as Halifax, Nationwide, Lloyds TSB and NatWest.’

David Hollingworth, of mortgage brokers London & Country, said: “The expectations for interest rate rises have diminished, so the funding costs for lenders have dropped back, and they are passing that on.”

Best buy deals start at under 3 per cent

The newspaper highlights a two year fixed rate from the Yorkshire Building Society at 2.99 per cent as a market leader.  This is available to a maximum 75 per cent loan to value and has a £995 arrangement fee.

The lender also has a leading five year fixed rate.  While the average cost of medium term fixed rates has fallen to 5 per cent, Yorkshire have a five year fixed rate at just 3.99 per cent with a £995 fee.