HSBC has become the latest lender to offer a mortgage deal with an interest rate of less than 1% in the latest sally of an intensifying mortgage rate war.

Banks and building societies are fighting for customers in a frenzied property market, described by the Bank of England’s chief economist as “on fire” as the government’s stamp duty holiday combines with big deposits saved during lockdown to ramp up demand.

On Friday, HSBC cut the rate on its two-year fixed product for those with deposits or equity of at least 40% by 0.05%, bringing it down to 0.99%. Borrowers have to pay a fee of £999 but the last time the bank offered a rate this low was nearly five years ago.

HSBC said people looking at moving on to or up the property ladder, or who had a fixed rate deal coming to an end, could secure “some of the lowest rates we have offered for a while”.

A number of lenders have already launched sub-1% deals with Platform, the intermediary lending arm of the Co-operative Bank, cutting the rate on its 40% deposit product to just 0.95% this week. This is the lowest rate available on the market.

These deals were “great” if you had an impeccable credit rating, a standard source of income and a very large deposit available, said Matthew Fleming-Duffy, a director at Cherry Mortgage & Finance.

“These products are great for a minority of consumers and certainly put these lenders at the top of best-buy tables, but for many potential borrowers – with more complex needs or smaller deposits – these attractive rates are sadly out of reach.”

Demand for property has pushed average house prices up 10.9% over the past year, the fastest pace for almost seven years, according to the Nationwide building society. Prices rose on average by 1.8% in May, after a 2.3% rise in April, according to the figures, pushing the annual rate of increase up from 7.1% a month earlier.

As a result, the average price of a house in Britain has hit a high of £242,832, up nearly £24,000 over the past 12 months. A decade ago, in May 2011, the average UK house price was below £170,000.

Mark Harris, the chief executive of mortgage broker SPF Private Clients, said it was a “super-competitive market for borrowers” with banks eager to lend given the low base rate. “We are sitting here thinking how much lower can rates go?” he added.

“There is a desire from the big balance sheet lenders who have got cash on their book at zero in terms of paying deposit rates, so even if it is going out the door at 1%, while that margin is skinny, it is still a margin.”