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.