The battle between mortgage lenders to offer ultra-low rates has intensified, with the launch of a two-year fixed-deal with the lowest rate that experts have ever seen.

The new deal from Yorkshire Building Society has a rate of 1.07% and comes with a product fee of £1,369. It is available to borrowers with a 35% deposit.

Rachel Springall, a spokeswoman for financial information website Moneyfacts, confirmed the rate is the lowest for a deal of its kind on its records, which go back to the late 1980s.

Other similar deals which it has recently seen on the market include a two-year fixed rate at 1.09% from the Co-operative Bank, which has a £1,499 fee and is available to people with a 40% deposit.

Yorkshire said it has also been reducing rates across its range by up to 0.35%. It is one of a string of mortgage lenders which have chopped their rates in recent months to some of the lowest levels they have ever offered.

Mike Regnier, Yorkshire Building Society's chief commercial officer, said: " Earlier this year, we launched a 1.18% mortgage, which was then our lowest-ever rate to date."

Other mortgage lenders to have chopped their rates in recent days include Nationwide Building Society, which yesterday made a series of rate reductions across its mortgage range, reducing selected fixed rate deals by up to 0.30%.

Research released by Moneyfacts earlier this week found that the average rate on a two-year fixed mortgage deal, across all deposit sizes, has fallen from 3.73% a year ago to 3.1%. Meanwhile, the average five-year fixed rate on the market has nosedived from 4.09% to 3.45%.

Office for National Statistics (ONS) figures showed this week that inflation turned negative for the first time in more than half a century last month, fuelling predictions that an increase in the Bank of England base rate from its historic 0.5% low, which would push up the cost of borrowing, seems unlikely to happen in the near term.