Fixed rates have dropped again after reaching their highest peak for more than a decade last month, says Moneyfacts.co.uk, the financial information website.

The average two-year fixed rate from one of the five largest lenders - Halifax, C&G, Abbey, Nationwide and HSBC - is now 6.45 per cent, down from a high of 7.08 per cent on July 11.

Darren Cook, of Moneyfacts.co.uk, says: “It is encouraging that, at long last, lenders are responding to the ease in wholesale borrowing costs and passing a discount on to the consumer. There is a sense that competition is finally returning to the fixed-rate mortgage market.”

Halifax, C&G, Nationwide, Abbey, HSBC and the Bank of Scotland have all cut their fixed rates in recent weeks, but rates are still higher than two years ago. On August 1, 2006, the average two-year fixed-rate was only 5.21 per cent.

Among the best buys picked by Moneyfacts.co.uk is First Direct's two-year fix at 5.98 per cent, although the arrangement fee is a hefty £1,998. Market Harborough charges 5.99 per cent, with a lower fee of £749. Both require a deposit of 20 per cent.

Fixed rates are largely determined by swap rates - the rates at which lenders can borrow from the wholesale money markets. Swap rates have increased dramatically during the credit crunch, making it more expensive for lenders to raise funds. But in recent weeks these rates have been falling.

Mr Cook says: “Two-year swap rates are continuing to fall and yesterday's closing price of 5.66 per cent is the lowest since mid-May. If these downward trends continue, we will see further fixed-rate cuts.”