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The average rate on a two-year fixed mortgage has fallen to its lowest level for nearly seven months as lenders compete for custom.
Financial information service Moneyfacts said the average rate had fallen from 5.92% to 5.87% in a day.
Major lenders, such as the Halifax and HSBC, have begun the year with rate cuts to keep hold of customers, as their own funding costs have dropped.
More reductions are expected, but many homeowners still face rising bills.
"The mortgage market may be heating up, but this won't fully ease the pain for the roughly 1.6 million existing borrowers with cheap fixed rate deals expiring this year," said Alice Haine, personal finance analyst from Bestinvest.
"They still face a heavy jump in interest payments when they switch onto a new product, with the only comfort that the situation could have been much worse."
Mortgage rates will remain higher than many people have been accustomed to because of significant changes over the past two years.
The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which are very expensive - with an average rate of more than 8%.
However, the UK's biggest lender, the Halifax, started the year by reducing the rate on some of its mortgage products by nearly one percentage point.
Others have followed suit such as TSB, First Direct and NatWest which will make cuts to some products on Friday, and more are expected to join them with reductions - although not every product will see such large falls.
These changes have already fed through to the average rates, as calculated by Moneyfacts. Both the average two-year fixed rate and five-year fixed rate are at their lowest level since June.
Richard Fearon, chief executive at Leeds Building Society, told the BBC's Today programme: "This mortgage price war has become very visible this week. There is always a Christmas slowdown, but we've seen the market come back with a bang and it's really competitive. Rates are down one percentage point or so since their peak."
On Friday, Halifax said house prices rose for a third month in a row to average £287,105 in December, but said it forecast a fall in prices this year with buyers perhaps becoming more cautious due to economic uncertainty.
Kim Kinnaird, director at Halifax Mortgages, suggested last month's growth was most likely driven by a "shortage of properties on the market, rather than the strength of buyer demand".
She added that with mortgage rates easing, "we may see an increase in confidence from buyers over the coming months".
While Halifax is the UK's biggest lender, its figures only take into account buyers with mortgages - about two thirds of all sales - and do not include those who purchase homes with cash or buy-to-let deals.
While Halifax's own mortgage approval data showed house prices ended last year 1.7% higher than in 2022, Nationwide recently said its data suggested prices ended the year 1.8% lower.
While both lenders have predicted slight falls in house prices in 2024, there is generally a mixed view among experts.
Separate figures from the Bank of England published on Thursday show that the number of mortgage approvals rose slightly in November, which could be seen as a sign of a touch more confidence from buyers late last year.
Approvals for house purchases were up from 47,900 in October to 50,100 in November. For remortgaging with a different lender, the total increased from 24,000 in October to 27,000 in November.
Guy Gittins, chief executive of Foxton's, London's biggest estate agent, told the BBC's Today programme there had been a "huge movement in confidence" late last year with the more new buyers registering compared to the same period in 2023. "I think the prices that we're achieving at the moment in the UK are relatively steady, but what we will see is a lot more movement in the market and many more transactions," he added.
Source: BBC Website: Kevin Peachey
