Focus on: Now you can fix your mortgage rate at just 1.79%!

Mortgage rates have been on the slide for months but now HSBC has stormed the market with the lowest EVER two-year fixed rate.

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By opting for this deal, borrowers can set their repayments at a rate of just 1.79% for the next two years.

However, there has been a flurry of cheap rates in recent weeks, and this deal isn't without its downsides. These include a hefty arrangement fee, as well as needing a substantial deposit to qualify.
 
We take a closer look at HSBC’s new offering, comparing it with other two-year fixed-rates deals on the market.

What's the deal?

HSBC has launched a two-year fixed rate mortgage priced at 1.79%. This is the cheapest two-year fix ever – not just from the bank, but in recorded history.

You will need to put down a 40% deposit to qualify for the deal and stump up an arrangement fee of £1,999.

And, as is typical with fixed rate mortgages, you will be tied in for the duration of the deal.

Early repayment charges (ERCs) are quite complex however, so check the terms and conditions carefully to make sure you know how much it would cost you to repay the mortgage before the end of its term.

Who's it good for?

Borrowers who have significant equity in their property (or those with large upfront deposits) but who are still seeking the security of fixed monthly payments for the next couple of years.

However, because of the fee, whether this particular deal is the best one for you depends on how much you intend to borrow.

Any catches?

Despite the temptingly low interest rate, if you are unsure about locking into a deal for two years, and need flexibility, this may not be the best deal for you because of the ERC.

Also, while it can be added to the loan, the £1,999 arrangement fee is high.

This means that you will need to borrow a fairly large amount for the set-up to actually work out cheaper when compared to other deals on the market.

For example, Norwich & Peterborough Building Society offers a two-year fixed rate, also for those borrowing up to 60% of the property value, at a slightly higher rate of 1.99% but with a much lower £995 fee.

And, according to our number-crunchers at MoneySupermarket, if you are borrowing anything less a hefty £440,000, this N&P deal would work out cheaper.

When bearing in mind the maximum amount that can be borrowed with HSBC’s deal is £500,000, this doesn’t give you much headroom.

Other two-year fixes on the market which you should also factor into your sums are Chelsea Building Society’s rate of 1.89% with a fee of £1,695, and Yorkshire Building Society’s rate of 1.94% which comes with a £1,495 fee.

If you need any more help, contact our mortgage partner, London & Country for free, independent advice on 0844 209 8725.

What's the verdict?

As demonstrated, while the HSBC deal offers a record-breaking rate, you will need to factor in the high arrangement fee.

However, if you are looking for a large loan, can lay your hands on a 40% deposit and want to cash in on the lowest rates in history, HSBC’s two-year 1.79% rate is a winner.

Top tip!

The more you can slot aside for a deposit when buying a property, the better mortgage deals you’ll be able to access. The best deals are typically available for those with hefty deposits of as much as 40% of the purchase price.

But don’t feel disheartened if there’s no way you’ll have savings anywhere close to this sum. There is a range of deals available for those with a 10% deposit to put down (in fact HSBC has also re-priced some of these deals downwards too) which are available on MoneySupermarket's mortgage channel.

You can improve your chances of being accepted for a mortgage by making sure you have a strong credit report. If there is anything on your credit report that you want to dispute or explain, you can add a 'notice of correction' free-of-charge, which all lenders are obliged to consider. To learn more, read Jessica Bown's recent article: 'Do you know what's o your credit report?'.

Your credit report is easy to obtain from on the credit reference agencies which you can compare at our credit reporting channel.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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