The mortgage market could destined for a better future as lenders continue to offer reduced rates. But with First Direct resuming mortgage lending, the signs suggest that the market could be entering a softer period in the mortgage crunch.

First Direct has also announced that it will start offering mortgages to new customers again, after pulling its range at the start of April. The HSBC owned online and telephone lender has begun selling mortgages again to new customers. It is speculated that the re-entry by First Direct could signal an improving market and a better future for borrowers.

Since First Direct pulled out of the market, rates have risen significantly. It remains competitive but is not the cheapest on the market. The bank's two-year fixed rate of 4.75% had been one of the best on offer to homeowners at a monthly cost of £594 on a typical £150,000 interest-only homeloan.

Today the bank charges 5.76%, with a £499 booking fee and £1,499 arrangement fee. Monthly repayments would be £720 on £150,000. All its deals are only available up to 80 per cent loan to value and on loans of £400,000 or less. Borrowers can get a two-year fix of 5.75% from Loughborough building society. Monthly repayments would be just £1 less at £719.

However, the deal offers a much lower £649 arrangement fee and is available up to 90% loan to value while the same cannot be said of Skipton building society which offers its customers 5.79% fixed for two years up to 95% loan to value with a £799 fee.

Following the steps of other mortgage lenders, Nationwide Building Society has cut interest rates by up to 0.3% on its fixed-rate range.

At the same time lenders such as Abbey have also cut fixed rates by up to 0.17% and trackers by 0.05%. A significant number of mortgage lenders are now only offering top rates to those with at least a 20% or 25% deposit and charging sizeable fees including those seeking standard variable rate loans.

Borrowers hoping for an instant respite from the mortgage crunch are likely to be disappointed however, with mortgage costs still failing to fall substantially. It is not all bad news for borrowers because on average top three-year fixed rates and tracker deals slipped back in cost slightly, by 0.1% to 6.13% and 0.05% to 6.21%, respectively.

Earlier in April, online and telephone bank First Direct temporarily ceased mortgages for new customers, saying it had received five times its normal number of applications. The company says it has now cleared the backlog of mortgage application approvals and has begun to offer loans again at up to 80% loan-to-value, with a two-year fix at 5.76% and £499 fee.

Louise Cuming, head of mortgages at price comparison site Moneysupermarket.com, said: “This is welcome news in an otherwise hostile market place. First Direct's original stance made at the start of April was reflective of a cautious attitude towards the market as a whole. The reversal of the decision demonstrates a growing confidence in the market.”

The news that First Direct was re-entering the mortgage lending market came shortly after Abbey and Nationwide opted to reduce mortgage rates. At the same time, mortgage lender, HSBC announced that it was extending its rate matcher offer.

This could come as a relief to UK borrowers who for the past few weeks have been hit by the mortgage crunch. According to Moneysupermarket.com’s Credit Crunch Monitor indicates that the cost of the average best two-year fixed rate deal from the top providers rising slightly last week, by 0.03% to 6.26%.