HSBC have laid down the gauntlet for its rivals by lowering its rates for home buyers with small deposits. The bank has pledged to lend £1bn to borrowers with deposits of just 10%. The move is expected to breathe new life into a stagnant housing market by throwing first-time buyers a lifeline. During the recession banks have been much more nervous about whom they lend to and have been freezing out all but borrowers with large deposits by charging sky-high interest rates or arrangement fees to those who haven’t. Even some of those borrowers prepared to pay inflated rates are being turned down for not having spotless credit histories.
The products on offer for 10% deposit holders consists of a tracker mortgage at 4.59% (with no exit fee or tie-in) and a two-year fixed-rate deal at 4.99%. The bad news is that there is a £1,499 arrangement fee, but it still significantly undercuts the opposition. Financial analysts believe that other lenders will soon be following suit with Lloyds TSB rumoured to be already planning a response. David Hollingworth from mortgage brokers London & Country said: “If HSBC’s rivals start to lose business because of these low rates then they will soon look to counter. If it does spark competition then all the better for homebuyers.”
HSBC is believed to be in a strong market position following a number of years of responsible mortgage lending that left them without the toxic debts and the need for a bail out with public money such as rivals like Royal Bank of Scotland, Lloyds TSB and Halifax Bank of Scotland. Indeed HSBC has already pledged to lend £15bn to homeowners this year – twice as much as in 2008.
In addition to having to stump up the rather large arrangement fee, to qualify for the deal you must also subscribe to one of HSBC’s fee-paying current accounts at £12.95 per month. Although the deal is starting to sound less attractive, it still represents good value for money when comparing it to the next best thing for a 10% deposit, which is 5.99% with a £599 fee. Indeed it is the best value mortgage for that size of deposit that has been on the mortgage for about two years.
Although a tracker mortgage that tracks at 4.09% above the base rate or a fixed rate at 4.49% above the base rate do not sound very attractive at the moment, experts believe that interest rates will be on the up soon. Ray Boulger from mortgage experts, John Charcol said: “Many economists predict base rates could start rising in the next year, and there seems to be an agreement that when they do this they will spike up. With that in mind these HSBC mortgage rates look like a good deal going forward.”
On average, homebuyers now have to stump up a deposit of £30,631 – compared to £12,222 before the recession began. The tightening of the mortgage market has dashed the hopes of would-be first-time buyers hoping to capitalize on a fall of around 16% in house prices. According to the Council of Mortgage Lenders (CML), the number of first-time buyer mortgage approvals fell to 8,900 in January, which is the lowest since records began. Only time will tell if the actions of HSBC will change all that.