MortgagesJun 21 2021

Signs of 'rate war' as more lenders offer sub-1% rates

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Signs of 'rate war' as more lenders offer sub-1% rates
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HSBC and Nationwide are the latest lenders to offer mortgage rates below 1 per cent, in what some have already dubbed a "rate war".

HSBC cut the rate on its two-year fixed mortgage product for borrowers with equity or deposits of at least 40 per cent by 0.05 percentage points.

This brought the overall rate down to 0.99 per cent and was the first sub-1 per cent deal the lender has launched since 2016.

Nationwide Building Society also announced last week (June 18) that it now offers a 0.99 per cent two-year fixed rate mortgage to the same type of borrowers. Whilst HSBC is charging a £999 fee, Nationwide is requesting borrowers pay a higher £1,499 fee.

Earlier this week, Co-operative Bank’s intermediary lending arm Platform cut the rates on its 40 per cent deposit product to 0.95 per cent. Currently, this is the lowest mortgage rate available on the UK market. 

“The rate war at the moment between these big lenders is likely caused by them trying to balance the risk profile of their books,” said Karen Noye, a mortgage expert at Quilter.

She added: “Such deals encourage these lower risk borrowers [with larger deposits] into the marketplace.”

Other lenders offering 0.99 per cent rates include TSB, Santander, and Hinckley & Rugby Building Society. The Cumberland is offering a 0.98 per cent rate, the second lowest rate on the UK mortgage market.

Rachel Springall, a finance expert at Moneyfacts, pointed out, however, that “these rates don’t tend to last long and often have a shelf life”.

Moneyfacts data shows sub-1 per cent fixed rates came onto the UK market in April 2017, and by October they were gone.

“We’re not talking about a long sustainable period,” said Springall. “We’re talking about a quick bout of excitement.”

She anticipates these rates to last even less time than they did in 2017, when government lending schemes were aplenty and a big boom in mortgages was afoot.

The current shelf life for a mortgage product at a fixed rate is 28 days across the entire industry, according to Moneyfact’s latest data.

Climbing inflation could also have some bearing on how long these sub-1 per cent rates last. Last month, UK inflation rose by 2.1 per cent, ahead of expectations and overshooting the Bank of England’s target of 2 per cent.

Both Springall and Noye referred to the approaching June 30 stamp duty deadline, which will see its threshold lowered to homes worth £250,000, as one reason for the lower rates.

“Lenders may also be forecasting a drop in demand from new borrowers,” said Noye.

“New and competitive deals will help drum up business for the lenders and keep customers coming through the door even after the government schemes designed to keep the housing market afloat during the pandemic end.”

These sub-1 per cent deals will, however, likely fence out some borrowers based on their criteria, according to Springall.

“Whilst these numbers make flashy headlines, in reality borrowers may not be eligible or have enough equity in their homes. Which is why it’s important they seek independent advice.”