Banks and building societies are starting to accept higher loan to value arrangements, but interest rates on these loans remain high.

The minimum deposit requirement had soared to as high as 40 per cent in the wake of the subprime mortgage meltdown. But in recent months, lenders have lifted some of their restrictions.

Since March, the number of mortgages that require a minimum of 15 per cent deposit rose by 62 to 231, according to a new study by Moneyfacts.co.uk. In spite of this, the average 2-year fixed rate mortgage stands at 5.06 per cent, unchanged from July.

The Bank of England announced today that it would leave interest rates unchanged at 0.5 per cent, though mortgage lenders believe that this will have little impact on mortgage rates.

“If we look at the bigger picture, lenders have a limited appetite for lending in what seems like an uncertain market,” said David Hollingworth of London and Country Mortgage Brokers.

“We shouldn’t be under the illusion that there’s a free lending market out there. There may have been an increase in enquiries, but whether they come through is a different story.”

Mr Hollingworth added that even if mortgage rates did drop to reflect the bank rate, first-time buyers might not secure the financing they need. That, he said, could cause demand to weaken and property prices to dip again.

His remarks come amid rising unemployment and cautious consumer confidence.

Ray Boulger of mortgage broker John Charcol expressed similar sentiments. He said the Bank of England announcement wouldn’t change mortgage rates.

“Rates will depend on two factors: the level of competition in the lending market - especially with what Northern Rock has been doing - and the degree to which banks can attract savings.”

Northern Rock, the state-owned bank, has lent a total of £2.3bn in new mortgages in nine months. The Newcastle-based lender has set its target at £9bn for 2010.

Mr Boulger expects other mortgage lenders to follow suit if Northern Rock continues to offer more competitive rates.

However, Darren Cook, a spokesperson for Moneyfacts.co.uk, said that only a few lenders have made cuts to their mortgage rates, which isn’t a good sign for healthy competition.

“It looks like lenders are trying to make an effort to increase their prudent appetite to lend, but we need to see more lenders trying to better each other on rates.”

But Mr Boulger said that rates have been falling slowly, and with Northern Rock’s aggressive targets, other lenders will be forced to offer better deals.