The deal, which is aimed particularly at first-time buyers, is charged at 3.99% and has no boking or arrangement fee.

The Co-operative Bank has pledged to lend £360m to first-time buyers this year. It says that in offering this low rate it is passing on the benefit of the Funding for Lending Scheme (FLS), which allows banks to borrow money from the Government at very low rates of interest with a view to lending it on in the form of mortgages and business loans.

James Hillon, head of mortgages at The Co-operative Bank said:

“We welcome the FLS as a route to boosting the housing market and the wider economy, but believe this goal will only be achieved by increasing the availability of mortgages to first-time buyers rather than just focusing on remortgage customers.

“By offering a market leading rate fee-free to those with a 10% deposit, we hope to remove some of the barriers to getting on the property ladder and offer first-time buyers a helping hand.”

John Sexton, mortgage expert from Moneynet.co.uk said:

“The market has been awash with rate cuts and super low cost new deals for those fortunate enough to have a 40% plus equity stake in their property, and until now lenders have decided to play it safe with the lower risk element of the market.

“That all changed today when Co-operative Bank launched a new two-year fixed rate mortgage priced at just 3.99% available even for those with only a 10% deposit.

“It’s excellent news to finally see FLS monies being used to help those aiming for the first rung of the housing ladder, particularly when you compare the new rate with what was available just a couple of months ago.

“In late August the cheapest 90% LTV two year fixed rate was 4.84% and a £495 fee from Yorkshire Building Society. On a £120,000 mortgage (25 year term) you’d have paid £690 per month for 24 months, whereas with the substantially lower 3.99% rate the monthly repayment falls to £632.

“Over the course of the two-year term, allowing for interest rate and product fee, the borrower will save £1887, a really useful saving for someone in the early years of home ownership. The monies saved could be used for decorating and DIY projects or purchase of white goods and home furnishings, either way it’s good news for retailers and the UK economy.

“With Co-operative bank pledging to lend the equivalent of £1 million per day to first time buyers in 2012 hopefully this will be a catalyst and encourage other lenders to follow suit.”

The Co-operative Bank has also announced today that it will partner with Camden Council to launch a shared ownership scheme to help first-time buyers in the area.