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A mortgage price war was declared today as Britain's biggest bank undercut rivals with the lowest ever interest rate for a new loan.
The two-year deal from HSBC allows home buyers to borrow at 1.99 per cent and will provide another boost to the recovering property market.
The discount mortgage is pegged to HSBC's standard variable rate.
This would be almost certain to rise if the Bank of England increased its rate from the current all-time low of 0.5 per cent.
But brokers today said they expect the Bank's headline rate to remain low for two to three years because of the depth of the recession, and hailed the deal as an “incredible rate” which could boost competition and “break the deadlock” on rates in the industry.
Ray Boulger, of mortgage broker John Charcol, said: “This deal is absolutely good news for homeowners.
HSBC's discounted rate looks like it could be a better strategy than fixed rates.”
HSBC's deal, which comes with a hefty £1,199 arrangement fee, is only available to buyers who can afford to stump up 40 per cent of the property's value as a deposit.
The bank — which did not have to be bailed out by the Government unlike its rivals Lloyds, Halifax, NatWest and Royal Bank of Scotland — was the largest net mortgage lender in the UK in the first half of this year, with £4.2 billion in new lending.
It has pledged to double its 2007 level of mortgage lending this year, making £15 billion available to customers.
As well as the 1.99 per cent deal, it is offering a discounted two-year deal to customers with a 10 per cent deposit, although this has a rate of 3.89 per cent.
Andrew Hagger, of Moneynet.co.uk, said: “This is an aggressive move from HSBC and may shake up what has become a rather stagnant mortgage market — we'll be watching closely to see how other lenders respond.”
Today, two other major lenders also reacted to falls in the cost of wholesale funding, with Barclays' lending arm, the Woolwich, and Cheltenham & Gloucester, which is part of Lloyds Banking Group, both trimming their rates.
Abbey, which is owned by Spanish banking giant Santander, is launching two new mortgage deals on Friday for buyers who need a loan of £150,000 or less.
The new offerings are being viewed as more signs of green shoots in the mortgage market.
Reader views (13)
Ted, (of London)
You are correct in your analysis. If you have a mortgage secured against your home, you don't actually own anything.The lender in effect owns your home and lets you live there subject to rent i.e the mortgage payment.
Eventually (on a conventional repayment mortgage) the capital and interest are repaid and ownership is achieved. So when you hear people say 'I own my house/flat'asked them if they have a mortgage secured on it and then gently remind then that they actually own nothing.
And of course those on interest only mortgages should be reminded that after 25 years of paying their mortgage the bank will still own their house.But then you can tell the Brown Clowns anything.
- Andrew Nicholls, Ely ,England
Polite question: If a HOMEOWNER (in possession of the house/flat property Deed) decides to re-mortgage - does the HOMEOWNER then become a HOMEBUYER (with the house/flat property Deed now held by the Lender?
If the answer is YES, would somebody in the know point this out to Ray Boulger, of mortgage lender John Charcoal, and Mark, Tunbridge Wells.
- Ted, London
Mark, Tunbridge Wells.
I shall ignore your remark, but remind you that a HOMEOWNER who remortgages, immediately becomes a HOMEBUYER.
Happy with that, numpty?
- Ted, London
These are the fabrications that the mainstream Meida, the BBC and the like have been pushing for months.
That the supposed reason that no-one is buying property is that they cannot get funding. LIES LIES LIES.
The truth is that the average house prices needs to fall from £154k. All the way back down to £75k for them to become affordable for FTBers once again.
It was all a huge mistake. And the bank crashes prove this. But Labour are performing complicated theivery to keep the UK housing market artificially inflated.
In 18-36 months House prices will have dropped by 60% from peak.
Once again making them affordable for the average hard working person who earns average wage.
[They would have fallen already if HBOS had not been bailed out with taxpayers money, yet the government try to sucker us and carry on as though its business as usual!!]
Get out of Parliamnet Labour and dont come back, EVER!
- James, London
This is a marketing trick. HSBC have linked this deal to their standard variable rate. When the Bank of England increases its base rate rate by 0.5% or more there is nothing to stop HSBC increasing its standard variable rate by as much as it wants, thereby increasing the rate and margin on this deal. It has in the past failed to match base rate changes in both directions.When the deal ends, the rate of course jumps up - people would be better with a lifetime tracker mortgage, not much more expensive. Its also true that this is definately not the lowest rate HSBC have offered as Escobar testifies below. Go and see a broker. HSBC can only offer its own deals, which are not as transparent as you would expect from a big lender.
- Paul Northants, NORTHANTS UK
This is proof that its not that the banks dont want to lend but rather that borrowers dont want loans!. When a bank has to reduce its mortgage rate to 1.9% then we really are in trouble.
I would expect that the majority of borrowers that qualify for this loan will be using the money to redeem other previous mortgages that are coming to the end of their fixed term. Borrowers who have 40% equity in their own homes.
I have to admire HSBC as this is a clever move to mop up those borrowers and get them tied into a two year discounted deal. Obviously after the two years they can hike the rate, but hey thats business!
The 40% deposit is significant as that also gives a reasonable cushion for the bank against the inevitable fall in future house prices, regardless of what the estate agents tell us!
- Sam, London
Ted of London you are a numpty. HOMEOWNERS can REMORTGAGE and take advantage of this mortgage offer.
- Mark, Tunbridge Wells
WARNING:
Interest rates will eventually rise and then so will your mortgage payments. On a £250,000 that equates to an increase of £65 per month for every 0.25% rise and of course our cash depleted banks will not hesitate to raise rates and probably by a greater amount.
Interest rates may be rising sooner than the B of E predicts (they've been wrong before).Is it wise to take on so much debt so soon after a debt crisis led to a severe recession? Not really but then, Browns' Clowns never learn do they.
- Andrew Nicholls, Ely ,England
Any action that encourages MORE borrowing and therefore HIGHER prices for homes is, we must HAVE learned by now, a bad thing.
The more you can borrow, the more the price escalates.
The more the price escalation, the less first timers can afford, the more the future social divide.
And, with interest rates at an all time low, base rates and therefore repayments in future are sure to go UP, just as unemployment goes UP.
A disturbing scenario.
- Darius, London UK
"Britain's biggest bank (HSBC) undercut rivals with the lowest ever interest rate for a new loan."
Well, that's not true, because my SVR mortage when taken out with HSBC is guaranteed never to be more than 0.49% above base rate, for the lifetime of the mortgage (thirteen years to go!), and that extends to home owner loans too.
- Escobar-Alop-Lop, Camden County
So brokers hail it as an "incredible rate", yes I'm sure it is ... but how many people can honestly afford to put down 40% deposit right now? Why aren't they giving decent rates for people with 5 and 10% deposits?
- Louise, Essex
Ray Boulger, of mortgage broker John Charcoal, is once again mischievously (or unwittingly) referring to HOMEBUYERS as HOMEOWNERS - and, if HE doesn't understand the distinction between the two, why should WE listen to or believe a single word he spouts?
- Ted, London
Come on everyone; get into more debt while it’s cheap.
It won't last long, fools paradises never do?
- Mickinlondon, london
