Some homeowners will breathe a sigh of relief this week, as the two year fixed rate mortgage has fallen below seven per cent, having peaked at its highest rate for more than a decade.

Moneyfacts.co.uk has found that the record breaking cost of a two year fixed rate mortgage has fallen and now stands at an average of 6.96 per cent, having reached a 10 year high of 7.08 per cent in the last few weeks.

“As swap rates increased lenders were quick to pass on their increased borrowing costs to customers,” explained Michelle Slade, analyst at Moneyfacts.co.uk. “However, as swap rates have declined these same lenders have not been in quite the same hurry to bring their rates back down.”

Interest rates have also fallen on other fixed rate mortgage deals; the three year fix has fallen 0.12 per cent, and the five year fix by 0.06 per cent during the same period.

It’s worth shopping around, Ms Slade added, now that rates have fallen slightly and the number of mortgage products available has started to creep back up, but she is mindful that this does not signify a definite change in the market, and that as swap rates remain high, it is “too early to say that we have finally turned the corner.”

Woolwich, the mortgage arm of Barclays, is one of the mortgage lenders to announce rate cuts; its 10 year fixed rate mortgage will fall below six per cent, its three year fix by 0.20 per cent, and its five year fix by 0.10 points to 6.29 per cent.

Andy Gray, head of mortgages for Woolwich, said: “We have seen an improvement in the swap rates recently and have taken the opportunity to reduce our longer term fixed rates where we see customers can get the best value at the moment.”

Despite the ray of light, however, this news comes alongside a gloomier outlook, as banks could be forced to rain in mortgage lending by £180billion, according to Capital Economics, as they struggle to find sufficient funding to keep up with pre-credit crunch levels of lending, despite a number of cash calls.

Meanwhile, specialist buy-to-let mortgage lender Paragon is in talks about a potential takeover as it struggles to survive the turbulence in the mortgage market and subsequent writedowns. Its shares have lost almost 90 per cent of their value in the last 12 months.

© Fair Investment Company Ltd