The downside of the HSBC deal is a 40% deposit and a steep booking fee. Photograph: Sang Tan/AP
The first five-year fixed-rate mortgage to charge less than 3% interest has been launched by HSBC in what mortgage brokers are proclaiming to be a “standout” deal.
The bank says the loan, pegged at 2.99%, is the lowest-ever five-year fix offered to UK households. But potential borrowers will need a 40% deposit to qualify for the deal and pay a steep Â£1,499 booking fee.
The rate is strikingly lower than any other five-year deal on the market. Ray Boulger of John Charcol says the previous “best buy” five-year fix was from Nottingham building society, at 3.69%.
The new deal reflects a growing consensus that the Bank of England may keep base rate pegged at 0.5% for far longer than anyone expected. Base rate has been at 0.5% since March 2009 and some economists expect it to stay at this level through to 2015 and beyond.
Boulger says: “When the rate went to 0.5% Roger Bootle was about the only economist saying it would stay there for longer than two years. Now, expectations about the first rise in rates keep being put further and further back, with some saying 2017, although that may be going too far.”
Borrowers will have to weigh up the risks of a rate rise against the rate they are now paying. For example, Nationwide building society has hundreds of thousands of borrowers on its “base mortgage rate” at just 2.5%. A 0.5% rise in base rate will make their mortgages more expensive than the HSBC fix.
“A lot of people, such as those on Nationwide’s deal and who have a large mortgage, might think it’s worth paying the extra 0.5% premium for the certainty it brings,” adds Boulger.
David Hollingworth at broker London & Country says: “At this rate there is little or no margin over most trackers on the market, and it will certainly appeal to those borrowers who have been mulling over whether it’s the right time to fix and want to know exactly where they stand for the medium term.”
But although HSBC has become one of the UK’s biggest mortgage lenders â€“ this year it will have a market share of 11% compared with the 3% level it took before the financial crisis â€“ it has strict lending rules and will turn down many applicants. It is also worth noting that the Â£1,499 booking fee is paid upfront, and if a house purchase falls through, the borrower loses the money.
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