According to Moneyfacts.co.uk, the average rate of a two-year mortgage has dropped below 5% for the first time in four months.

According to comparison website Moneyfacts.co.uk, the average rate for a two-year fixed rate mortgage has dropped below 5% for the first time since June.

Mortgage rates had risen in July this year, with the average reaching a peak of 5.21% by the end of the month.

Michelle Slade at Moneyfacts.co.uk said: “Borrowers continue to favour shorter term deals, as in uncertain times they are not tied in for long periods if market conditions change dramatically.

“Borrowers are finally starting to see more positive news coming out of the mortgage market.”

The fall in interest rates indicates that competition between financial institutions and loan providers is increasing.

Ms Slade added: “Falling rates on popular two year fixed rate mortgages, occurring against a backdrop of lenders raising the maximum loan-to-value on their most competitive deal suggests competition is increasing.”

However, the drop in interest rates has yet to reach mid-term and long-term deals and homeowners looking for longer repayment plans will find average rates on the rise. In recent months, the average rate of three-year fixed mortgages has risen to 5.58%.