HSBC launches Britain's first fixed-rate mortgage below 1%
Customers lock in for two years at 0.99% interest, but they need a deposit of 35%, in deal described as new benchmark
HSBC has launched Britain’s first fixed-rate mortgage with an interest rate below 1%, as competition among lenders hots up and the cost of borrowing for banks and building societies falls to new lows.
The bank is offering customers the chance to lock in for two years at an interest rate of 0.99%, but they need a deposit of at least 35% and will pay a product fee of £1,499.
David Hollingworth, of mortgage brokers London and Country, described the rate as “absolutely ridiculously low … It sets a new benchmark for two-year fixed rates.” He said the fee was “big, but not the biggest” and that repayments on a £150,000 mortgage would be £565 a month.
The deal is the cheapest fixed rate on the market, and the lowest ever recorded by the financial information firm Moneyfacts. It matches HSBC’s previous lowest rate, a 0.99% discount deal it offered in 2014, but undercuts Yorkshire building society’s current market-leading fixed rate of 1.14%. That loan has a slightly lower fee of £1,345.
Rachel Springall, finance expert at Moneyfacts, said: “As with any deal, applicants should always work out the true cost of the mortgage to decide whether it’s right for them.”
Hollingworth said the rate on the deal was one percentage point below the cheapest five-year fixed-rate, a 1.99% mortgage also offered by HSBC. “You have to weigh that up against the longer-term security of the five-year deal. Two years comes around pretty quickly, but for some people that suits them just fine,” he said.
Funds for the loan would be limited, so it was unlikely to be around for a long time, he added.
The launch comes as Moneyfacts data shows that rates on two-year fixed-rate mortgages have risen since May, from an average of 2.56% to 2.58%. However, five- and 10-year deals have fallen to all-time lows of 3.16% and 3.46% respectively.
Although the Bank of England base rate has remained unchanged since March 2009, mortgage rates have fallen in recent years as the cost of funding the loans has dropped. The recent dip in long-term fixed-rate deals has been driven by investors seeking a haven for their cash in the run-up to the EU referendum on Thursday. Concerns about a Brexit vote have driven money into government bonds, driving yields on them down to record lows.
The maximum available to borrowers who take out HSBC’s new mortgage is £500,000.
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