UK bank HSBC has made the surprise announcement that it has introduced a two year fixed rate mortgage that charges just 1.99%, representing the second lowest rate ever made available for purchasing a new home.
In 2006 Portman Building Society briefly offered a 1.95% deal, but was overloaded with small print clauses that tied customers to the product for several years beyond the two year fixed rate.
The HSBC offering also suffers from some tight conditions, but is expected to start a price war among rival banks who have so far refused to pass interest rate savings on to customers, preferring instead to re build their own reserves, show a good profit and empty the coffers with bonus payments.
Restrictions on the latest HSBC mortgage deal will keep it out of reach for first time buyers and in fairness, most house purchasers. The special rate is available only to clients who can put up 40% of the buying price as a deposit and even then there is a hefty ‘arrangement’ fee of £1,119.
Other restrictions on the latest HSBC product include applicants needing a perfect credit history and the fact the two year deal is linked to the HSBC Standard Variable Rate (SVR) which currently stands at 3.94%. If the SVR increases so too does the fixed rate and it reverts to the SVR once the two year period has ended.
Other leading lenders Barclays, Woolwich and Cheltenham & Gloucester reacted quickly to the HSBC news by trimming the rates on their own products, although it has to be said it was more of a gesture than anything significant.
Figures from the National Association of Estate Agents suggest that over 50,000 homes were purchased in July 2009, compared to a low point in November 2008 when the figure was 27,300.
To revert back to a healthy housing market that figure needs to be consistently 60/70,000.
As an aside, with all the talk from the FSA regarding transparency from financial institutions, isn’t it about time that banks offered mortgages in plain English with no arrangement and termination fees, no small print and easily comparable terms?
1 comment so far
1 malcolm simpson // Sep 5, 2009 at 9:06 pm
Your article is wrong in two ways!! First The 1.99% deal is not a fixed rate it is a discount rate and therefore liable to increase, probably by more than BOE rate rises. Secondly the arrangement fee is £1199 not £1119.