One of the UKís leading lender has launched its most significant offensive in what is fast becoming a fierce price war between Britainís top banks, with the upshot being cheaper mortgage rates for consumers everywhere.
HSBC is now offering home loans at an interest rate of 0.99%, which represents the lowest rate ever seen on the mainstream lending market, hinting at the prospect of an upsurge in the number of housing transactions in the coming months.
Peter Dockar, head of mortgages at HSBC, said: ëWe know how important a low monthly payment is for borrowers, and are committed to offering market leading rates.í
Perhaps most significant, is the timing of HSBCís announcement ñ just days after deputy governor of the Bank of England, Andrew Haldaneís assertion that the UK economy was ìwrithing in both agony and ecstasyî with falling unemployment levels and low inflation being cancelled out by feeble wage growth and poor productivity.
With ìthe timing of the upturn being repeatedly pushed backî, policymakers have conceded now that their forecasts are steeped in unpredictability and doubt, and by Mr Haldaneís own admission, the base rate is unlikely to be lifted by the MPC until deep into next year, after the general election.
What HSBCís deal means for Consumers
According to the conditions of HSBCís new mortgage offering, a consumer can borrow up to £500,000, and on a £150,000 mortgage split over 25 years, the 0.99% rate yields monthly repayments of £570 potentially saving households between £3000 and £10000 dependent on locale.
Additionally, policyholders are afforded the ability to overpay on their mortgage by up to 20% each month, meaning if individualsí are able to, they can pay off their loan early. Yet, the perks donít keep coming, and consumers ought to be aware of some of the shortfalls entailed within the deal.
Due to tougher lending criteria, and banks thus being obligated to ëstress-testí prospective borrowers in the case of an interest rate, individuals are only eligible for HSBCís 0.99% mortgage if they can lay down a deposit worth 40% of the property in questionís value. As such, borrowers short of large lump sums of cash can effectively forget about taking out HSBCís 60% loan-value mortgage and consider their 90% mortgage with a rate of 2.89%.
Moreover, the 0.99% rate is linked to HSBCís Standard Variable Rate (SVR) which stands at 3.94%, with policyholders essentially enjoying a 2 year discount of that rate of 2.95%. HSBC can move their SVR rate at any given time, but this is a highly improbable move except in the case of a base rate hike. If the BoEís rate-setting committee decides to act quickly, consumers will find their funds thinning at a rate of knots, however if Mr Haldaneís comments are to be believed and a base rate hike is not on the cards until well into next year, then HSBCíS offering will remain cost-effective.
It is whether customers want to play the short-term gain and gamble on the longevity of HSBCís 0.99% home loan or go for a fixed-rate mortgage which would mean higher monthly repayments in the short-term, but could be the prudent measure in the long-term, and in any case would offer consumers a sense of security.
The mortgage policy comes with a sizeable, non-refundable booking fee of up to £1,999.
Martin Beck, economist at the Ernst & Young ITEM Club, said: ìIn isolation, falling mortgage rates and an imminent price war could spur demand and certainly act to boost the housing market.
ìBut there are factors cooling the market that are impossible to ignore, with surveyors reporting the number of houses on sale falling and fewer people looking to buy.
ìHouse prices, for many people, have risen so high that they've lost interest - but more affordable mortgage rates could stop this holding back demand."
David Hollingworth, director at brokers London & Country, said: ëHSBC has set down a marker for all its rivals. Iíd expect further rate cuts to come now because the market is very competitive and the cost of providing mortgage finance has fallen too. This should act as a small incentive for homebuyersí.
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