Mortgages  

HSBC kicks off rate war with first sub-2% five-year fix

HSBC kicks off rate war with first sub-2% five-year fix

HSBC may have started a new price war after announcing the market’s first five-year fixed rate deal priced below 2 per cent earlier today (20 April).

The mortgage is available at 60 per cent loan-to-value and has a booking fee of £1,499. Charlotte Nelson, spokesperson for Moneyfacts, confirmed that at a rate of 1.99 per cent, it is the lowest on record.

Andrew Montlake, director at Coreco Mortgage Brokers, called it a ‘watershed’ moment and added that there are a whole host of borrowers set to be disappointed again as they will be unable to meet some of the lending criteria HSBC require.

Article continues after advert

“Whether we see other lenders follow suit remains to seen, as although inflation figures are at zero and Swap rates have fallen again recently, lenders seem to be getting close to the point where further price reductions would no longer be cost effective.”

He noted that low rates alone will not be enough for lenders to meet their targets this year, as they are all targeting the same pool of borrowers.

“Until criteria improves to help those mortgage prisoners affected by the recent changes in affordability and some lenders harsh interpretations of the new legislation where interest-only, older borrowers, the self-employed and contractors are concerned, mortgage lending will remain constrained.”

Chris Williams, chief executive at online investment adviser Wealth Horizon, commented that this rate will inevitably kick-start a new home loan war that will see other lenders offer cheaper high-LTV mortgages in order to encourage people to invest in property.

He stated that the market is hotting up for those lenders looking at the baby-boomer generation, which this month was given access to large deposits by being allowed to cash in their pensions.

“The current generation of pensioners has always had a obsession with property, despite the fact that the market is notoriously volatile.

“Those looking to invest their pension in this way should be warned that bricks and mortar cannot, and should not, be the sole answer to how they fund their retirement,” he warned, adding that investors should still diversify their exposure to ensure they are not leaving themselves vulnerable by taking too much risk on any one market.”

Calum Bennie, a spokesman for Scottish Friendly, agreed that the new deal is unlikely to help most first-time buyers.

“Because of the need to provide a 40 per cent deposit, this mortgage deal is more likely to appeal to those with plenty of money to spare, in particular retirees who have taken advantage of their new-found pension freedom and who want to use this to invest in property,” he noted.

“With interest rates remaining low and house prices outstripping wage growth, the launch of the HSBC mortgage, in the short-term at least, is unlikely to tip the balance for home ownership becoming anything other than the preserve of the wealthy and the retired.”

peter.walker@ft.com