HSBC launches 1.99% mortgage
HSBC has launched a mortgage deal priced at just 1.99% for two years.
The deal is only available to remortgaging homeowners and buyers who have a deposit of least 40% to put down. The loan amount is capped at £500,000.
HSBC is also offering a two-year mortgage priced at 2.49% for people with a 25% deposit. Both deals are discounted versions of HSBC’s standard variable rate (SVR) and borrowers taking advantage will have to pay an arrangement fee of £1,999.
The discounted mortgage is the cheapest ever offered by the banking giant, and reflects its increased appetite for mortgage lending.
Martijn van der Heijden, head of mortgages at HSBC, says: “Across the market, lenders' SVRs are at an all-time low, as a result we are launching our lowest ever mortgage rate - 1.99% - to appeal to remortgaging homeowners.”
Other deals on offer include a mortgage fixed at 5.99% for two years for people with just 10% deposit, and a three-year mortgage fixed at 4.19% for people looking to borrow 60% of a property’s value.
HSBC also have three lifetime trackers at 2.74% (40% deposit), 2.95% (25% deposit) and 4.59% (10% deposit).
“We have also made our higher loan to value mortgages even better value to support the increasing number of home purchasers either move, or step on the housing ladder for the first time,” says van der Heijden.
Andrew Montlake, director of mortgage broker Coreco, welcomes the launch, which he hopes could encourage other lenders to up their game. “Competition is good – this deal should make other banks sit up and take notice,” he explains.
However, he urges borrowers considering the HSBC 1.99% deal to take care: “HSBC, like other lenders, is notorious for cherry-picking the best customers and rejecting the rest. We’ve had a number of clients come in after applying for an HSBC mortgage only to be rejected six weeks later.”
If you find you aren't eligible for the HSBC mortgage, then Montlake says other contenders include Woolwich’s 2.97% two-year tracker with a fee of £1,499, available for people with a deposit of at least 30%. He also likes Alliance & Leicester’s fee-free two-year tracker priced at 2.95%.
Andrew Hagger, spokesman for comparison website Moneynet, says while the headline rate on HSBC's deal is market-leading, the fee looks "pretty hefty" for such a short discount. He calculates it will add £50 per month to borrowers' costs.
The fact that the HSBC deal is a discount mortgage, linked to the bank’s SVR, could also cause problems. While tracker mortgages literally ‘track’ the Bank of England base rate, lenders reserve the right to increase or decrease their SVRs as they please.
The base rate is currently just 0.5%, meaning it can really only rise in the future. Montlake warns that when this happens, HSBC could increase its SVR above and beyond the base rate.
However, a spokesman for HSBC says the bank has no appetite at the moment to increase its SVR by more than any potential base rate rises.
If you were to want to leave the 1.99% HSBC mortgage within the two-year discount period, you will have to pay an exit fee. This is calculated on a daily pro-rata basis – so, if you leave after six months, you’ll have to pay an exit fee of 1.5% of the outstanding mortgage balance.
Such an attractive deal is unlikely to remain around for long, say experts.
"If there’s a flood of applicants chasing the headline 1.99% deal it will be interesting to see if HSBC can manage demand or whether the offer gets oversubscribed and then pulled within a couple of weeks," Hagger explains.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
Not to be confused with an early repayment charge (ERC). Exit fees are levied on top of ERCs, which are a method of clawing back lost interest on a loan repaid early. By contrast, exit fees are charged for the administrative work this entails. They are charged as flat fees, from £150 to £300. However, in January 2007, following mortgage lenders surreptitiously raising fees sometimes by fivefold, the Financial Services Authority (FSA) intervened and most mortgage lenders removed exit fees from new mortgages. If you paid exit fees on your mortgage before January 2007, you may be able to claim them back.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
A charge some brokers (and, increasingly, lenders) make for arranging your loan or mortgage, either as a flat fee or a percentage of the amount you wish to borrow. In order to look ultra-competitive in the best-buy tables, some mortgage lenders will offer mortgages with an attractive low rate and recoup any losses with a hefty arrangement fee.