The interest charged on short-term fixed rate mortgages fell to a record low during May as lenders passed on reductions in their own funding costs to borrowers, new figures show.

The average cost of a two-year fixed rate deal dropped for the third consecutive month, falling by 0.19% to stand at 3.47%, according to the Bank of England.

Interest charged on tracker mortgages remained at a record low of 3.45%, while there was also a fall in the cost of five-year fixed rate deals, with the cost of these now averaging 5%.

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 on the high street such as Halifax, Nationwide, Lloyds TSB and NatWest.