HSBC have introduced the cheapest fixed mortgage rate on the market in a reaction to the increase in competition within this sector and interest rates plummeting across the board.
The deal, launched on Monday, is a two-year fixed mortgage tariff offering an interest rate of just 1.19% for those customers who have a 40% deposit. Despite this, a substantial amount of £1,499 is required as an arrangement fee. Thus, for example, a 25-year £150,000 mortgage would end up costing the homeowner £578 each month and a total of £15,378 across the two year period.
This means that despite the record low interest rate, a home owner would be better off going for a higher fixed rate of interest at the Yorkshire Building Society because they only ask for a £975 fee.
Many experts have said that the highly competitive nature of the market at present could lead to interest rates of below 1% on fixed-rate mortgages, if only for a brief period of time.
The head of lending at the Mortgage Advice Bureau, Brian Murphy, stated: ììMortgage lenders are in a race to the bottom [with regard to interest rates].î
He also alluded to further cuts and competition with the introduction of a challenger bank in the form of TSB – a company which is able to recommend mortgages through third parties and thus reach a wider customer base.
Murphy commented: ìTSB has gained some traction in the marketÖBanks are probably still a bit under-lent relative to where they want to be.î
In March 2009 the Bank of England drastically cut its base rate on mortgage lending to 0.5%. When this was done, the average tariff on a two-year fixed rate mortgage was just below 4% yet subsequent to that cut, the average has been also plummeted, reaching 2.08% in December of last year.
There is much speculation as to whether the Bank of England will raise its base rate soon which is leading to some anxiety for mortgage lenders and their potential customers.
Furthermore, despite the reduction in interest rates, figures recently released by the British Bankersí Association show that mortgage lending in December 2014 dropped 24% from the same month in 2013 – the total number of loans, 35,667, amounted to £5.8 billion in value.