Interest rates on new mortgage deals have fallen to their lowest level since 1988, according to the financial information service Moneyfacts. This is due to lenders finding it cheaper to raise funds in the financial markets.

Analysts suggest that the large financial institutions have come to the realisation that the Bank of England is unlikely to raise its bank rate above 0.5% soon.

However, most mortgage deals still require buyers to put down at least a 20% deposit.

Earlier this year the market expected a rise in bank base rate, that saw mortgage rates start to rise. An imminent rise in bank base rate now appears unlikely, and the cost of funding on the swap rate market has reduced.

Lenders appear to be applying cuts equally across all loan-to-value (LTV) tiers, which is good news for first-time buyers, as previously cuts were only being applied to the lower LTV bands.

The swaps rate determines the cost of borrowing for banks and building societies when they want to borrow longer-term money in the financial markets at a fixed rate to lend onto their customers.

The market provides an indication of when banks expect the Bank of England to raise short-term interest rates.

Until recently, a rate rise had been expected as soon as September. But following a set of weak economic data, as well as the decision by a new member of the Bank’s rate-setting committee to vote for no change in rates, markets now do not expect a rate rise until well into next year.

According to Moneyfacts, the average two-year fixed rate deal is now at 4.32%, three year fixed deals now average 4.92%, five-year fixes are at 5.29% and the average two-year tracker deal is now at 3.37%.

Some notes of caution have been sounded for anyone taking advantage of low interest rates, however. Interest rates will start rising at some point, so anyone considering a variable rate deal needs to make sure they’ll be able to afford higher monthly repayments.

Research data from the Bank of England has suggested a new and more accurate predictor of house price could be developed very soon. The suggestion is that web search data can provide an early signal of house price changes in the UK.

The research in the Bank of England’s latest quarterly bulletin concluded that the search data outperformed other traditional economic indicators. Using Google’s Insights for Search tool, researchers found that searches for “estate agents” tended to peak a month ahead of rises in house prices.

The Bank also said the data could help predict changes in unemployment. Searches for “unemployment” and “JSA” (jobseeker’s allowance) rose markedly in line with the unemployment rate during the 2008-09 recession.

Conversely, however, searches for the term “jobs” did not seem to vary much with changes in employment.

Although the results provided a good leading indicator of the jobs market, they were not significantly better than other existing indicators, such as the Jobcentre claimant count or consumer confidence surveys.

The study claimed that internet search data have a number of appealing properties as economic indicators. They are extremely timely and cover a potentially vast sample of respondents. 60% of UK adults use the internet on a daily basis.

However, the researchers warned that the data also contained pitfalls. Internet users tend to come from specific age and income groups, which may skew the data. Many users made searches based purely on curiosity - which can add a lot of unhelpful random examples to the search data - while some important economic activities, such as business investment decisions, did not typically involve internet searches.

The Bank also noted problems with the Google data itself, particularly the fact that it only provided percentage changes in the relative popularity of a given search term, but did not give the actual number of searches.

This made it particularly hard to know which search terms to use for the study. The fact that the data only went back a few years also made it difficult to draw definite conclusions about its usefulness.

The problems with this new method of prediction are clearly numerous, but then again it is a very tricky thing to get right. What this news does show is that once again technology, and especially the internet, is proving useful in ways we could not have even imagined just a few years ago.

Analysts are now keenly watching the latest data from Google in the hope that it will reveal the much needed boost in the fortunes of the UK housing market.