HSBC launches 1.99% mortgage!

by Ed Bowsher on 02 September 2009  |  6 comments
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HSBC has given the mortgage market a big shake by launching a 1.99% mortgage.

We live in extraordinary times. HSBC has launched a 1.99% mortgage. That's a stunningly low rate. This is easily the lowest mortgage rate on offer in the UK market.

So what's the deal?

It's a discounted variable rate mortgage. That means it's connected to HSBC's standard variable rate (SVR) which currently stands at 3.94%. If HSBC raised its SVR to 4.94%, then the rate on the mortgage would rise to 2.99%.

The deal lasts for two years and you'll have to pay a fee of £1199 which is a bit above average. You'll also need a chunky 40% deposit to get this rate. If you only have 25% equity in your home, you'll have to pay 2.49%.

Any downsides?

Well, the base rate will rise from 0.5% sooner or later. And if it does go up, HSBC will almost certainly increase its SVR. Then the rate on this mortgage will, in turn, rise from 1.99%. My best guess is that the base rate will stay low in 2010, but it might start to rise rapidly in 2011.

So if you take out this mortgage, there's an element of uncertainty. If you want to be 100% sure what your repayments will be over the next 2 years, you should take out a fixed-rate deal.

What's more, even if the base rate stays static, there's still a chance that HSBC could raise its SVR regardless. That's why I'm not normally a fan of variable rate mortgages. I usually prefer tracker mortgages which move in lock step with the base rate.

As I said earlier, the £1199 fee is on the high side, so if your mortgage debt is small, it may not make sense switching to this mortgage.

I also fear that HSBC will get loads of applications for this deal and then only accept the best borrowers. So if you apply, there's a chance you may be rejected.

What about Bank of China?

I did a video last week in which I said that Bank of China's 3% lifetime tracker deal was my favourite mortgage.

At that stage, HSBC was charging 2.49% on its best variable rate deal but I argued that Bank of China offered the best deal even though its rate was higher than HSBC's. That was because the HSBC deal ties you in for two years whereas you can escape from the Bank of China deal after a year.

But now that HSBC has cut its rate to 1.99%, I don't mind being tied in for two years. A 1.99% rate is just too tempting. HSBC's deal is my new favourite mortgage.

Other lenders should follow

It's great that HSBC has made this move. Sadly, many lenders have been charging too high rates when compared to the base rate. Let's hope that HSBC's move shames them into cutting their rates too.

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