HSBC has been one of the few lenders actively competing to attract new mortgage customers and it's great news that it's keeping on the pressure with its new deals. This will hopefully result in lower rates from other lenders too.
What's on offer?
HSBC's 1.99% deal is a two-year discount with a £1,199 arrangement fee.
A discount means the rate is linked to the lender's standard variable mortgage rate (HSBC's is currently 3.49%), as opposed to the Bank of England base rate, which tracker mortgages are linked to. The main implication of this is that, theoretically, the rate can be changed at HSBC's discretion - unlike trackers which mirror base rate changes.
However, not everyone will be eligible. The penchant for only the lowest-risk borrowers continues. HSBC is only offering the 1.99% deal to those with a deposit of at least 40%, precluding many from taking advantage of it.
The bank does have other deals available to those needing to borrow a higher proportion of the property's value: the two-year discounted rate for those needing to borrow between 60% and 75% is 2.49%, while a rate of 3.89% is available for loans up to 90%.
If you do qualify for the 1.99% product it is a really competitive deal. That said, the relatively high fee means that some people may be better off opting for a loan with a higher rate but lower fee. For example, if you're borrowing less than £70,000, Market Harborough Building Society's two-year discount at 2.99% will actually work out cheaper than the HSBC deal. This is because the arrangement fee is significantly lower at £245.
What other options are available?
If you'd prefer a longer term deal, a lifetime tracker is worth considering. Again, HSBC has the market-leading deal at 2.74%. The fee is £999 and the product is available for loans up to 60%. If you need to borrow more than that, HSBC also has the leading 75% lifetime tracker at 2.95% with a £699 fee, and its 90% deal has a rate of 4.59% with a £999 fee.
A variable rate mortgage won't suit everyone though. Fixed rate mortgages offer greater security as you know exactly what your repayments will be for a set time, giving you protection against future interest rate rises. However, this extra security comes at a cost as the rates on fixed deals are higher than those on the leading discounts and trackers. For some, this is a premium well worth paying.
First Direct has the leading two-year fix at 3.49%. A 40% deposit is required and the arrangement fee is £1,298. Alternatively, HSBC has the leading five-year fix at 4.95%. The fee is £999 and it is also only available for loans up to 60% of the property's value.
If you need to borrow more than that then, guess what, HSBC leads the way again. It has a two-year fix at 5.99% and a five year deal at 6.49% - both products are available up to 90% and the fee is £599.
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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