A FURTHER drop in interest rates could see the cost of fixed-rate mortgages plummet to as low as one per cent.

The City firm Bernstein predicts that if the Monetary Policy Committee (MPC) slashes interest rates again it will bring down lenders’ own borrowing costs, leading to cheaper mortgages.

Meanwhile, buyers could be set to benefit from a price war among lenders competing to offer the best deal on mortgages.

Interest charged on fixed rate mortgages is already at an all-time low with people borrowing 80 per cent of the value of their home being offered rates of between 1.6 and 1.7 per cent.

Those borrowing a lower proportion of the value of their home are predicted to benefit the most from any drop in interest rates. Interest rates for those with a 20 per cent equity stake in their property could fall by half a per cent to just over one per cent by the middle of next year according to analysts.

Chirantan Barua, of Bernstein, told Zoopla, “If you have a 20 to 30 per cent cash deposit and a good credit profile, the day where you will be able to actually bargain out a sub one per cent mortgage in this market is not far off.”

The MPC cut interest rates to a quarter of a per cent in August following the UK’s decision to leave the European Union.

It is expected to cut rates to 0.1 per cent in November.