What’s the deal?
HSBC’s new two-year discount has the market-leading rate at 1.99% - this is set at 1.95 percentage points below the bank’s standard variable rate (SVR), currently 3.94%, for the term of the deal.
The product is available for house purchases and to those remortgaging, but you need a deposit of at least 40% to qualify and the maximum loan size is £250,000.
There is a £999 arrangement fee, which must be paid upfront. However, those remortgaging receive free legal work.
An early repayment charge (ERC) will be levied if you redeem your mortgage during the two-year discounted term. You’ll be charged 2% of the outstanding loan if you want to get out of the mortgage in the first year and 1% in year two. However, the mortgage is portable so if you move house during the two-year term you can avoid the ERC by transferring the loan over to your new property.
It is important to note that this deal has a variable discounted rate linked to HSBC’s SVR, rather than a tracker which is linked directly to the Bank of England base rate. This means that it is up to HSBC when the rate changes, and by how much. When base rate fell 4.50 percentage points from 5% to 0.5% between October 2008 and March 2009, HSBC’s SVR was cut by just 2.31%.
The next move in interest rates is likely to be upwards and the risk of a discount is that the rate could rise by more than any increase in base rate.
If you are fortunate enough to have a 40% deposit and are happy to go for a variable-rate deal, then this is the most competitive two-year variable rate on the market. However, it won’t be for everyone and it’s important not to base your decision on the initial rate alone.
You may prefer to pay a slightly higher rate and opt for a longer term deal, such as a lifetime tracker, so that you don’t have to remortgage again in two years.
And don’t forget that this is a variable rate mortgage, so your payments could – and probably will – rise over the two year term. It is impossible to say by how much though. If this uncertainty would worry you, a fixed rate mortgage will be a better option. You will pay a higher rate but at least you’ll have the security of knowing exactly what your mortgage repayments will be for the next few years.
When comparing mortgages, it’s important not to base the decision on rate alone. Arrangement fees vary significantly and once you factor in the set-up cost the product with the lowest rate may not actually be the best value option. You therefore need to work out the total amount you will pay (including fees) over the term of the mortgage deal. If you are unsure how to do this an independent mortgage adviser will be able to help.