HSBC launches 0.99% mortgage deal
A mortgage price war has intensified after a major bank announced it is to launch a deal with a 0.99% rate.
HSBC said the product, which is available from Monday for borrowers with a 40% deposit, has the lowest rate it has ever offered, while mortgage experts said they have not seen similar deals on offer since the 1990s.
The 0.99% deal is in effect a 2.95% discount off HSBC's 3.94% standard variable rate (SVR), which lasts for two years.
In theory, HSBC could decide to increase its SVR within the two-year discount period, which would mean the rate would move above 0.99% but the borrower would still get a rate of 2.95% below whatever the new SVR rate was for the two years after initially taking out the deal.
Speculation is continuing over exactly when the Bank of England base rate will start moving off its historic 0.5% low, pushing up borrowing costs, although the base rate is not directly linked to SVRs, which lenders set themselves.
The last time HSBC changed its SVR was in 2009.
People taking out the 0.99% deal can choose to cut extra chunks off the size of their loan by making overpayments of up to 20% of the standard monthly mortgage repayment each month.
But early repayment charges also apply for the first two years of the deal if someone wants to pay off more than this.
For borrowers who would prefer to have a fixed deal, HSBC is also offering a product at a fixed rate of 1.49% for two years. Both the fixed and the SVR deals have a £1,999 booking fee.
HSBC's offering is the latest in a string of new deals which have been launched by lenders in recent weeks as they strive to make their ranges more appealing.
Experts have put the new battle for mortgage holders' business down to lenders looking to meet end-of-year targets as well as trying to play catch up after the introduction of stricter mortgage lending rules earlier this year, which caused some disruption to the market.
A recent Bank of England report said that mortgage availability had shrunk back over the summer, but also that lenders expect the availability of home loans to widen again in the coming months as they look to meet their market share objectives.
Swap rates, which lenders use to price their loans, have also been falling recently, adding further fuel to the mortgage price war.
Rachel Springall, a spokeswoman for financial information website Moneyfacts, said: "We are likely to see more headline-grabbing deals as the year comes to a close."
She described HSBC's SVR discount deal as "unusual" and said the last similar discounted variable deal which it had on its records was being offered in the late 1990s.
Ms Springall said: "With the anticipation of a base rate rise around the corner, some customers may prefer to tread carefully with their finances and fix their mortgage."
She highlighted a two-year fixed deal by Norwich and Peterborough Building Society which is available at 1.89%, with a £195 fee, for people with a 35% deposit.