HSBC Rides To Homeowners' Rescue!
The UK's biggest bank is offering to match existing interest rates on fixed-rate mortgages. But this offer lasts for five weeks only...
There are eighteen million owner-occupied homes in the UK, 11.8 million of which have a mortgage. In other words, more than seven in ten Britons (72%) own their home. This explains why house prices are a national obsession-- and why cheap, available mortgages are so important.
However, thanks to a worldwide credit crunch, banks are very wary of lending to each other. This has slashed the amount of money available for mortgages, causing lenders to raise their interest rates, tighten their lending criteria, and turn away borrowers.
Thus, despite two 0.25% cuts to the Bank of England base rate, mortgage rates for home-buyers and home-movers are actually higher than they were before the cuts. At the same time, the number of different mortgages on offer has gone into steep decline, with more than seven in ten mortgages vanishing since last June.
Naturally, with mortgages becoming more expensive, homeowners are worried. This worry intensified on Tuesday, when the Halifax announced that its house-price index had fallen by 2.5% in March. This was the largest monthly fall ever, apart from since the 3% recorded in September 1992 in the depths of the last housing crash. Indeed, Halifax failed to mention that house prices fell by 1.3% between March 2007 and March 2008 -- the first annual fall for twelve years.
Thus, millions of homeowners are spooked and are desperate for good news!
HSBC rides to the rescue?
Although it is a top-ten mortgage lender, HSBC has a relatively modest share of overall mortgages: just 3%. However, thanks to its global reach, HSBC is the UK's biggest bank, as measured by company value. What's more, it has big operations in Asia and the Far East, where savers think nothing of squirreling away 30% of their take-home pay each year.
Thus, HSBC has access to a vast pool of savers' capital, which means that it doesn't need to rely on the now-frozen money markets. Thus, this cheap, liquid capital allows HSBC to give its larger, cash-strapped rivals a bloody nose. It has done this by launching what it calls its `Rate Matcher' mortgage, demand for which is sure to be sky-high.
Here's how Rate Matcher works:
- It will be available from Monday, 14 April.
- HSBC will rate-match homeowners' existing fixed-rate deals, down to rates as low as 4.54% a year.
- These fixed-rate deals will last for two years.
- Borrowers must pay an arrangement fee.
- Borrowers must have a deposit or existing equity of 20% of the property valuation.
- Rate-matching is only available on loans up to £250,000.
- This deal is available only to non-HSBC mortgage borrowers.
- Applications will only be accepted from borrowers with fixed rates due to expire before 30 June.
- This campaign will last for five weeks.
It's just another teaser offer!
So, HSBC launched what appears to be a mouth-watering offer for homeowners about to come off their cheap, fixed-rate mortgages. However, the overall attractiveness of this offer hinges on the fee attached to each deal. Thus, it's the fee that's key!
The fee payable will depend on the rate to be matched and the size of loan offered. HSBC reckons that more than seven in ten applicants (72%) will pay a fee of under £1,000. Given that current fixed-rate deals are priced at up to 6% a year, HSBC will use arrangement fees to subsidise its lower rates. Thus, people with ultra-low rates and large loans could face fees amounting to thousands of pounds.
Alas, this offer will be of no use to first-time buyers or buy-to-let landlords, as neither are likely to meet the strict terms and conditions attached. Thus, it's clear that HSBC is cherry-picking the best of the mortgage borrowers -- home-movers and remortgagers with first-class credit histories and sizeable existing equity. In effect, these are `mortgages for Middle England'!
Of course, HSBC isn't doing this as a charitable gesture. Like other banks, it's in the business of maximising its profits and, therefore, its returns to shareholders. By offering a `teaser' deal like this, it will lure customers from other banks, increase its market share, and shake up its rivals -- all at the same time.
Around 1.4 million homeowners will lose cheap fixed-rate home loans this year. Thus, HSBC's mortgage sale could attract upwards of 135,000 borrowers during the next five weeks. However, given the publicity surrounding this announcement, this figure could be even higher. HSBC expects mortgage applications to triple during this campaign. Hence, the big question is: is HSBC ready for a flood of applications, or will its customer service suffer, as has happened to other lenders?
So, my advice concerning this deal is: give HSBC a shot, as you've nothing to lose. However, be sure to check with a whole of market mortgage broker in order to see what else is out there. Otherwise, you could miss out on an even cheaper deal, once all fees and rates have been taken into account. Of course, we recommend the Fool's award-winning, fee-free mortgage service, of which we're duly proud!
Finally, the government is so worried about the potential for a housing meltdown that Chancellor Alistair Darling is setting up a taskforce, led by the former boss of Halifax, to establish how to improve supply and liquidity in the mortgage market. Also, the Prime Minister, Gordon Brown, appeared on BBC television last night to reassure homeowners. Alas, his nervous and hesitant replies left this doomsayer feeling even more pessimistic!