As HSBC launch a 1.99 per cent mortgage, Ed Bowsher, head of consumer finance at lovemoney.com comments:
“This is a stunningly low mortgage rate and easily the lowest on offer in the UK market but, as always, the devil is in the detail and home buyers should make sure they read the small print before signing up.
“This is a discounted variable rate mortgage so it’s connected to HSBC’s standard variable rate (SVR) which currently stands at 3.94 per cent. If HSBC raised its SVR to 4.94 per cent, then the rate on the mortgage would rise to 2.99 per cent.
“On the downside, the deal lasts for two years and the fee is £1199 which is slightly above average. Potential customers need a chunky 40 per cent deposit to get this rate. If they only have 25 per cent equity, the rate will be 2.49 per cent.
“Plus, the Bank of England base rate will rise from 0.5 per cent sooner or later. I suspect that it will stay low in 2010, but it might start to rise rapidly in 2011. And when it does go up, HSBC will almost certainly increase its SVR, meaning that the rate on this mortgage will rise.
“What’s more, even if the base rate stays static there’s still a chance that HSBC could raise its SVR anyway. 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.
“However, having said that, it’s great that HSBC has made the move to introduce a lower rate mortgage. Sadly, many lenders have been charging mortgage rates that are just too high compared to the base rate. Let’s hope that HSBC’s move shames them into cutting their rates too.”
