The mortgage market has been stirred up this morning with the news that HSBC has launched the lowest ever five-year fixed-rate mortgage.
The bank is offering borrowers a stunning rate of 2.99% for five years, blowing the old best-buy, Yorkshire Building Society's 3.79% out of the water.
40% deposit
However, there are a couple of downsides to the HSBC mortgage. Firstly, it has a maximum loan to value (LTV) of 60%, so you'll need a deposit of 40% to secure the rate. Secondly, there is a hefty fee of £1,499.
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HSBC has also announced a new fee-free, fixed-rate mortgage for those borrowers with a smaller deposit. They can take advantage of a two-year fixed mortgage with a 90% LTV with a 3.84% interest rate.
"Every borrower has different needs from their mortgage. We recognise that many are looking for certainty with their mortgage payments over the longer term and have launched these products to meet that demand," says Peter Dockar, head of mortgages at HSBC.
Hopefully, HSBC's announcement will just be the opening shot in a new mortgage war and other banks will also start dropping their rates.
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%.
Building society
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
