David Prosser: Will lenders' Christmas spirit endure?

Outlook While Britain's banks, including those now backed so heavily by the taxpayer, are now almost certain to miss the targets they set themselves for lending to business, it's only fair to report that lending to mortgage borrowing does finally seem to be less constrained. The monthly updates on how much lenders are advancing may be showing only modest improvements, but competition is at least returning amongst home loan providers.

In particular, the market for fixed rated home loans, which has been so uncompetitive over the past year that it might as well have been shut, is showing signs of life. Since the start of December, so many lenders have cut their fixed rates that the average cost of these loans is now below 5 per cent for the first time since June. Last week, the average rate registered its biggest fall of the year so far, and now stands at 4.86 per cent, according to Moneyfacts, the personal finance data provider. Two-year fixed rates are particularly affordable, with many lenders now pricing below 4 per cent.

That's still miles above the Bank of England's 0.5 per cent base rate, of course, but fixed rates also reflect expectations about longer-term interest rates. And if the cost of these deals keeps falling, homebuyers and those remortgaging may soon start considering this segment of the market again, rather than just opting for lenders' standard variable rates.

More important than the question of what lenders are now charging is the idea that they are battling for borrowers' business. The downwards movement of fixed rates at last is part of a trend back to normalcy, with more loans becoming available to those with smaller deposits too.

That's welcome news to first-time buyers, who have not benefited from the correction in the housing market to the extent one might think. When house prices were falling, finding mortgage finance was tough because lenders offered such limited loans-to-value. Now mortgages are easier to come by, prices are rising again.

The sustainability of the housing market's recovery remains to be seen – though Nationwide and Halifax have both reported further growth in November this week, both have also issued some big caveats about 2010 – but any easing in the conditions facing those climbing on the bottom rung will improve the chances of there not being new slides next year.

In fact, what we want, given that house prices remain too high on most models, is a lengthy period of little or no growth, with the lending market continuing to ease. The return of the buy-to-let phenomenon would not be helpful, but let's cross that bridge when we come to it. For now, let's see if the newfound competitive momentum amongst leading lenders continues into the new year.