HSBC outlines its Help To Buy mortgages
HSBC is to offer new homebuyers two fixed-rate mortgages up to 95% loan to value (LTV) from Monday 25 November as part of the government's Help to Buy (HTB) scheme.
The bank will launch a two-year deal at 4.79% and a five-year deal at 4.99%, both reverting to the lender's standard variable rate (currently 3.94%) with a booking fee of £99.
The deals are cheaper than those Help to Buy mortgages already announced by RBS, NatWest and Halifax.
RBS and NatWest are offering a two-year fixed-rate deal mortgage at an interest rate of 4.99% and a five-year fix at 5.49%. Neither come with fees.
Halifax has announced two two-year fixes. One has a rate of 5.19% and comes with a fee of £995, and the other has a rate of 5.59% but is fee free.
Yorkshire Building Society is also set to launch a competitive 95% LTV that is not part of the HTB scheme. It will soon launch a two-year fix at 4.89%, reverting to 4.99% after the fixed period ends, that has no product fee and comes with £500 cashback on completion.
The banks are keen to demonstrate they will be more responsible with the return of low deposit mortgages and HSBC said its mortgage borrowers will be required to put down a minimum deposit of £10,000 and be assessed to ensure they can afford repayments at significantly higher interest rates compared to those available now.
Customers applying for 90 to 95% LTV deals will be asked "to acknowledge a monthly repayment illustration at a responsible long-term rate". HSBC said: "This will provide an indication of their increased monthly mortgage payment when, as expected, interest rates rise."
Brendan Cook, head of retail banking and wealth management for HSBC UK added: "We want to support our customers, whether they are buying their first home or moving up the housing ladder. In order to protect them, we want to ensure they can afford their repayments when interest rates rise."
HSBC's HTB mortgages will be available from the bank's branches but not through mortgage brokers and it said it will look at offering the loans to remortgage customers "at a later date".
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%.
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.