Recent figures have shown that the interest charged on short-term fixed rate mortgages fell to a record low during December.

The average cost of a two-year fixed rate deal for someone with a 25% deposit dropped to 3.49% during the month, the lowest level since Bank of England records began in 1995.

Rates for the loans have been falling steadily since April last year as competition gradually returns to the mortgage market.

Tracker deals for a purchaser borrowing 75% of their home's value also remained competitive, edging ahead to 3.51% during December, only 0.02% above October's record low.

Interest on five-year fixed rate mortgages also remained close to their recent seven-year low at 4.75%.

Michelle Slade, spokeswoman for financial information group Moneyfacts.co.uk, said competition in the market was being driven by lenders trying to tempt homeowners to remortgage off standard variable rate loans.

But she said the deals concentrated on people who had a big equity stake in their property, who represented the lowest risk to lenders, and there were still only around 200 mortgages available for people with a 10% deposit.

She added: "Just because the products are out there doesn't mean that banks and building societies are looking to lend.

"If they have a particularly competitive deal they are probably trying to attract customers for this, but that does not mean they want to lend across the board. They are cherry-picking the best customers."

But while mortgage rates are gradually improving, the cost of unsecured borrowing remained high. Lenders are now typically charging record interest of 13.88% on loans of £5,000, while borrower's can expect to pay 10.51% on a £10,000 loan, up from 10.01% in November.