MORTGAGE rates remained broadly unchanged during September as the market continued to suffer from a lack of competition, figures showed today.

Average rates on tracker and standard variable-rate deals were static, although there was a small drop in the price of five-year fixed-rate mortgages, according to the Bank of England.

But despite further falls in wholesale funding costs during the month, lenders increased the average cost of a two-year fixed-rate mortgage by 0.03% to 4.46%, its highest level since last December.

The cost of fixed-rate mortgages rose sharply during June as lenders passed on rises in their funding costs to consumers.

Swap rates, on which the deals are partially based, have since fallen back, but very little of this drop has been reflected in average mortgage rates.

Two-year swaps fell by 0.12% during September to 1.85%, while five-year ones dropped by 0.09% to 3.27%. Both rates have continued to fall since the beginning of October to record lows of 1.75% and 3.07% respectively.

But lenders have been quick to point out that their funding costs are not based on swap rates alone. They are facing higher regulatory costs and lower interest returns on their own holdings.

They are also increasingly reliant on using deposits to fund their mortgage books since the wholesale markets dried up in the wake of the credit crunch.

Darren Cook, spokesman for financial information group, said: "One of the things that would force mortgage rates down is increased competition, but we are not seeing that at the moment.

"There are only a handful of providers dropping their rates and this is not making a big difference to the market."

The average cost of a tracker mortgage remained unchanged during September at 3.85%, while standard variable rates were static at 3.93% and five-year fixed-rate deals fell by 0.04% to 5.68%.

There was no change in unsecured borrowing costs, with overdraft rates and interest charged on £5,000 loans remaining at record highs of 18.97% and 13.18% respectively.

There was very little action in the savings market, with the returns paid on fixed-rate bonds dropping to 2.89% from 3.05%, while rates on tax-free ISAs dipped to a new record low of 0.4% from 0.41%, but the returns paid on other accounts remained unchanged.