The battle among lenders to squeeze mortgage rates further below 2% has been stepped up after a building society launched a record low deal.

However, borrowers seeking to take out the Chelsea Building Society's two-year fixed rate at 1.89% will need to come up with a 40% deposit and a £1695 booking fee.

Financial information website Moneyfacts said the deal was the lowest two-year rate on its records, which stem back six years, and is unlikely to have been beaten in earlier decades as the Bank of England base rate is currently at an all-time low.

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Chelsea is part of Yorkshire Building Society, which also unveiled a new two-year fix at 1.94% at 60% loan-to-value, which has a £1495 fee.

Rachel Springall, spokeswoman for Moneyfacts, said a frantic price war had broken out among lenders in recent weeks.