HSBC launches UK's first sub-1% fixed-rate mortgage
Property buyers can now lock in a sub-1% mortgage for two years, as HSBC has launched the UK’s lowest ever fixed-rate mortgage at 0.99%.
The deal is available to both buyers and those looking to remortgage, though you can only get it if you borrow up to £500,000 and have an up to 35% deposit (65% maximum loan-to-value).
After the two-year fix ends, the standard variable rate (SVR) kicks in at 3.94%, although this figure can change at any time.
Rachel Springall, financial expert at Moneyfacts.co.uk says “This new 0.99% two-year fixed deal from HSBC enters the market as the lowest fixed rate available, and the first sub-1% fixed deal since our records began.”
However, the HSBC deal has a £1,499 product fee, which means it could be beaten by a mortgage with a higher rate that has lower fees.
Mrs Springall warns: “As with any deal, applicants should always work out the true cost of the mortgage to decide whether it’s right for them.”
For example, someone borrowing £150,000 on a £250,000 property over 20 years would pay £689 a month with HSBC’s new deal. After factoring in the fees, the total cost over two years is £18,035. If buyers don’t remortgage after the fixed rate period ends, monthly repayments will rise to £882, assuming the SVR doesn’t change.
However, Norwich & Peterborough Building Society’s two-year fix at 1.49% could work out marginally cheaper over the first two years, as its fees are just £635. With £723 monthly repayments, the two year cost is £17,987 - £48 cheaper than the new HSBC deal.
But if buyers don’t remortgage with Norwich & Peterborough after the fixed rate period they could get stung. Its SVR is currently 4.99%, and if that doesn’t change, repayments would skyrocket to £961 a month.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.