Mortgage rates have continued to hit record lows, as HSBC launched its first sub-1 per cent deal in more than five years.
The lender has cut the rate on its two-year fixed product for those with deposits or equity of at least 40 per cent by 0.05 per cent, bringing it down to 0.99 per cent.
Though borrowers will need to pay a fee of £999 to access it, this represents a rock-bottom rate for the bank – the last time HSBC had a rate this low was in 2016.
How low can rates go? Those with lots of equity can now remortgage at very low interest rates
It follows Platform, the intermediary lending arm of the Co-operative Bank, which cut the rate on its 40 per cent deposit product to just 0.95 per cent earlier this week – the lowest mortgage rate currently available across the market.
HSBC’s rate cut was one of 21 across its mortgage products. The most dramatic reduction was on its 5 per cent deposit mortgage under the Government’s Mortgage Guarantee Scheme.
Interest rates on that product were cut by 0.2 per cent, bringing the rate down to 3.79 per cent with a £999 fee or 3.99 per cent with no fee.
HSBC also re-introduced a three-year fixed rate option, for buyers wanting a mid-point between the more common two and five-year fixes.
Those with 40 per cent deposits or equity can get a three-year fixed rate of 1.14 per cent with a £999 fee, 0.15 per cent lower than when three-year fixes were last available with HSBC in July 2020.
The lowest mortgage rates are reserved for those with lots of equity in their homes, however, and some are restricted to remortgages only rather than purchases.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘There are a number of sub 1 per cent products now available on the market, with HSBC being the latest lender to launch.
‘However, only equity-rich home buyers and remortgagors can access these deals.’
Cheap borrowing: HSBC has made several cuts to its mortgage rates, including on 95% deals
That said, mortgage rates are coming down across all loan-to-value brackets, as activity in the housing market remains intense and lenders compete for borrowers’ custom.
‘The competitive nature of the lending market is such that we are seeing rate cuts across the loan-to-value spectrum, so even those with more modest deposits and equity in their homes are benefiting,’ Harris added.
This has been due to factors such as the Government’s stamp duty holiday, though this is set to end on 30 June, and people’s desire for lifestyle changes and relocations during the pandemic.
Earlier this week, it was announced that inflation has risen in the last year above and beyond expectations. If that trend continues, mortgage rates may not be able to stay so low for long, so it could be a good time to consider fixing.
Will Rhind, head of mortgage advice at Habito, said: ‘Inflation rose by 2.1 per cent in the 12 months to May 2021, up from 1.5 per cent to April – just beyond the Bank of England’s 2 per cent target.
‘Many economists think if this trend continues, interest rates will have to rise in the future.
‘With rates currently at historical lows, this is an excellent reason to consider fixing your rate for longer.’
Those seeking a super-low rate have several options
For those lucky enough to have plenty of equity in their home and be able to access the lowest rates, there are now several extremely low-interest options.
The lowest two-year fix is being offered by Platform at 0.95 per cent, with a £1,499 fee – though the lender does also offer £250 cashback.
The Cumberland offers the next-lowest rate at 0.98 per cent, though it does also charge the highest fee at £1,999.
|Lender||Mortgage type||Rate||Available for purchases?||Minimum LTV||Fee|
|Platform*||Two year fix||0.95%||Yes||60%||£1,499|
|The Cumberland||Two year fix||0.98%||No||60%||£1,999|
|Nationwide*||Two year fix||0.99%||Yes||60%||£1,499|
|TSB||Two year fix||0.99%||No||60%||£1,495|
|HSBC||Two year fix||0.99%||Yes||60%||£999|
|Santander||Two year fix||0.99%||No||60%||£1,249|
|Hinckley & Rugby BS||Two year discount||0.99%||Yes||60%||£998|
|Leek BS***||Two year discount||0.99%||Yes||75%||£1,495|
|*Minimum loan amount £275,000 ** Only available to certain mortgage networks ***Minimum loan amount £200,000. Source: This is Money and Defaqto.|
Nationwide, TSB, Santander and HSBC are all offering two-year fixes with 0.99 per cent interest rates.
If you’re after the security of a longer fix, you will need to pay a higher rate as there are currently no lenders offering five-year deals below 1 per cent interest.
There are also two discount rate mortgages available at sub-1 per cent rates, from Hinckley & Rugby Building Society and Leek Building Society.
A discount rate mortgage will follow moves in a lender’s standard variable rate, which is the default rate they charge borrowers who have come to the end of fixed-term deals.
So in the example of the Hinckley & Rugby deal, your mortgage rate would be at a 4.90 per cent discount to the building society’s SVR for 2 years.
As the SVR is currently 5.89 per cent, your mortgage rate to begin with would be 0.99 per cent – but that could change at any time.
Borrowers taking a discount deal need to be sure that they could cope with increases in their monthly payments.
Buyers urged to weigh up rates against fees
These super-low interest deals may look tantalising, but they are not always the best value.
That is because, when you add the fee amount into your monthly payments, you may find they would have been lower if you had taken a mortgage at a higher interest rate without a fee. This depends on the amount of your mortgage.
Katie Brain, mortgage expert at Defaqto, said: ‘Although these rates looking fantastically low, the fee has to be taken into account with the loan size.
‘As these are all two- year fixed rates it would only be worth paying the high fees if you have a mortgage of £190,000 or more. ‘
Brain added that, based on a £150,000 loan for a remortgage with a 40 per cent deposit, the two-year fixed deal with the lowest overall cost is not any of these 0.99 per cent rates. Instead, it is HSBC’s 1.24 per cent rate with no fee.
Fees for remortgages have increased by 5 per cent in the last year, Brain said, to an average of £1,127.
It is also worth thinking about how often you will need to pay fees.
If you take a two-year fix, for example, you will need to pay again in 24 months’ time.
Rhind said: ‘It’s worth also keeping in mind that the lowest-rate products are typically the shortest fixes on the market (2-3 years), but, because of this, you’ll pay product fees every time you remortgage.
‘So if you chose a 2-year fix every time, you’re also going to pay that fee potentially 14 times over a 30-year mortgage term, costing around £14,000 in fees alone.
‘ Compare that fee cost to taking a 5-year, or a 10-year mortgage each time, then yes the rate might be higher, but you’ll pay fees just six or three times over the lifetime of the loan, not 14 times – so it’s worth working out, how that might impact your savings from taking the shorter fix lower rate.’