Will HSBC start a mortgage war?
The bank's new 1.99 per cent rate is an eyecatcher, but Chiara Cavaglieri wonders whether it will breathe life into a shaky market
Sunday 06 September 2009
Some predicted a mortgage price war after HSBC introduced a discount deal at 1.99 per cent last week, heading straight for the top of the best-buy tables. Although undoubtedly an eyecatching rate, will this really shake up the mortgage market?
"While the HSBC deals will be good news for some borrowers, there is so little competition in the market that it's unlikely that we'll see other lenders trying to match HSBC," says Richard Morea of broker London & Country.
The truth is that although HSBC's move is good news for some, it will actually benefit few people and is therefore a relatively empty indicator of recovery. For many people, whether first-time buyers or homeowners looking to remortgage, the market is still treacherous. Only buyers with at least a 40 per cent deposit are eligible for the new HSBC loan which comes with a rather hefty booking fee of £1,199 and is discounted from its Standard Variable Rate (SVR). A tracker mortgage reflects the movement of the base rate but lenders do have the option of increasing their SVR at any time.
"It's just a way for HSBC to grab some headlines and cherry-pick the customers they want," says Andrew Montlake, from broker Coreco. "I don't think it's a prelude to a mortgage rate war. If you look at their tactics over the past few months, they've come out with a rate, taken their fill and pulled it," he adds.
Experts are also questioning how well HSBC will manage demand if there's an influx of applicants. This could scupper homebuyers relying on getting finance in place quickly to secure a purchase. "Because of the volume, it's taking a long time to get mortgages out of them. There are concerns that property sales could fall through because of this," Mr Morea says.
With its high deposit, the HSBC loan, like the majority of any other low-rate deals on the market, is still well out of the reach of most first-time buyers. Even a 5 per cent difference in deposit has a huge effect on both the competitiveness and the number of loans available. RBS, for example, offers a rate of 3.69 per cent for a deal fixed until 31 October 2011, with an LTV(loan to value) of 75 per cent. For homebuyers with only an 80 per cent LTV, though, that rate shoots up to 5.39 per cent for the same fixed period. Many experts argue that without a more sensible approach to underwriting at higher LTVs, a full recovery is still a long way off.
"Borrowers looking to borrow a maximum of 75 per cent have seen improvements in the deals on offer, but those needing to borrow more will find their options limited and will pay a premium for the privilege," says Mr Morea.
While it remains clear that lending is tight for first-timers, there are some signs that things are picking up. The August housing market report from the National Association of Estate Agents revealed that although the number of sales decreased, there was a sharp increase in the number of first-time buyers from 22 per cent in July, to 63 per cent in August. There have been other indications that the mortgage lending market in general is slackening slightly; there are now more mortgage products on offer, lenders are making their best rates available up to 70 per cent LTV now, and, overall, there are more lenders open for business, albeit to elite borrowers. "They're still very strict on criteria, but they are out there saying they'd like a little more business," says Mr Montlake.
The question of whether to fix mortgage rates has been another contentious issue of late. Although in the first half of the year many people flocked towards fixed-rate deals after warnings that these would rise steeply, new borrowers are focusing on variable-rate loans, according to figures from John Charcol. The broker reported that the number of clients taking up variable-rate deals more than doubled from 16.9 per cent in June to 34.7 per cent in July – a result of rapidly increased fixed-rate costs and predictions that the Bank of England base rate is unlikely to rise in the near future.
However, lenders do face increased pressure to cut the cost of fixed-rate loans after steep falls in their own lending costs. Lower swap rates, upon which fixed-rate deals are based, encouraged both Woolwich and Cheltenham & Gloucester to make cuts last week. Woolwich, for example, reduced the rate on its two-year fixed mortgage by 0.2 per cent to 4.09 per cent. The loan is restricted to 70 per cent LTV. But there is no guarantee that other lenders will follow suit and with demand outstripping supply, lenders will still be reluctant to attract too much business.
Experts say that homeowners with a monthly budget flexible enough to withstand potential rate rises next year can afford to take a risk with the more attractive variable-rate offers. However, those concerned that a rise would jeopardise their ability to repay their loans are advised to consider fixing for security of knowing how much their monthly payments will be. "I've always felt that if you're on a tight budget, you should fix. Trying to second guess where rates are going is a pretty dangerous game to play," says Mark Harris, from broker Savills Private Finance.
Mr Harris advises against short-term fixes and urges homeowners to take the insurance of a long-term fix instead. "You've got to look at five years – it gives you time to plan. There's almost no point fixing for two. If you're going to take a short-term view I would be tempted to float on a tracker instead," he says.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Technology company Alibaba posts job advert asking for 'stunning' women with qualities of adult film actress Sora Aoi
- 2 How the language you speak changes your view of the world
- 3 'Fire at every person you see': Israeli soldiers reveal they were ordered to shoot to kill in Gaza – even if the targets may have been civilians
- 4 Italian police 'reveal' what Jesus looked like as a young boy
- 5 Uploading pictures to find out how old you are gives Microsoft the right to post them wherever they want
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings