Strong competition between banks is driving down mortgage prices, according to the Financial Conduct Authority (FCA).

The financial regulator found evidence that greater rivalry is driving choice and lowering prices for consumers and small businesses, despite the financial impact of the pandemic.

In an update to its 2018 strategic review of retail banking, the regulator said evidence suggests that intense competition, partly driven by the increased use of brokers, has benefited mortgage borrowers through lower interest rates, though these make it more difficult for smaller lenders to compete.

Interest rates have fallen by around 0.9% between 2015 and 2020, or around 30% on average across the residential mortgage book as a whole, according to the review.

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“We still expect intense competition in mortgages and continued pressure on banks to reduce operating expenditure to be features of the market in the future,” the FCA’s review said.

Bank of England interventions and government lending support were also responsible for the increased mortgage competition.

“Competitive pressures and innovation are starting to deliver for retail banking customers, with greater choice, lower prices and more convenient ways to bank,” said Kate Collyer, chief economist for the financial watchdog.

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Competition in the mortgage market also increased product availability, with FCA analysis suggesting that “some customers have been able to get mortgages who might not otherwise have been able to”.

Banks told the watchdog that a further impact of increased competition has been innovation in the broker channel. Banks have developed software for brokers to help them identify appropriate mortgages for customers more easily and quickly, which the FCA said might have improved the service that brokers can offer for consumers.

The value of gross mortgage advances in in the first half of 2021 reached £172bn, which was the highest level since 2007. However, the number of property transactions completed in the UK above £40,000 has not reached the pre financial crisis peak.

As of October 2021 the number of such transactions stood at 1.21m, in comparison to 1.61m pre-crisis peak in 2007, according to HM Revenue & Customs data.