The average rate for a two-year fixed mortgage stands at 4.68%, while five-year fixed deals average 4.97%, according to data from Uswitch

A mini mortgage price war has kicked into full gear as lenders slashed rates all the way down to 3.75%, as the government and Bank of England (BoE) push for more relaxed lending rules.

The average rate for a two-year fixed mortgage stands at 4.68%, while five-year fixed deals average 4.97%, according to data from Uswitch. It is the first time this year that both averages are below 5%.

The Bank of England has kept interest rates at 4.25% amid inflation fears, delivering a blow to homeowners who were expecting a relief in their mortgage. The primary inflation measure, the Consumer Price Index (CPI), stood at 3.6% in the 12 months to June, well above the BoE’s 2% target.

Chancellor Rachel Reeves announced new plans, under which renters who have a good track record of monthly payments will be able to use this to prove to lenders how much they can afford to borrow, sometimes without the need for a deposit.

Reeves will also launch a permanent mortgage guarantee scheme to help more people get on the housing ladder.

The BoE also loosened its lending rules. Until now, just under 10% of new mortgages issued are for valuations exceeding 4.5 times a borrower’s income. That is now set to rise to 15% across the industry, with some building societies and banks now able to offer an even higher number of new mortgages at that level.

BoE estimates suggest 36,000 extra mortgages with higher loan-to-income ratios could be handed out each year as a result of the change.

Nationwide, Britain’s biggest building society, has also cut the salary requirements for first-time buyers from £35,000 to £30,000, in a move it hopes will enable 10,000 more people to become homeowners.

This week, HSBC, Santander, Barclays, and Halifax all reduced rates, going deeper into sub-4% territory for those with a 40% deposit.