HSBC 'cheapest ever' 1% interest mortgages show housing market has peaked, analysts say

The deal comes as estate agents and lenders turn to increasingly risky products to try to tempt buyers to the market

HSBC has undercut Yorkshire Building Society's 1.14% fixed rate deal to offer customers a mortgage with interest rates fixed at 1%

HSBC's "cheapest ever" mortgage shows the housing market has peaked, experts have said.

HSBC has undercut Yorkshire Building Society's 1.14 per cent fixed rate deal to offer customers a mortgage with interest rates fixed at 1 per cent for two years.

The deal comes as estate agents and lenders turn to increasingly risky products to try and tempt buyers to the market as experts warn that house prices have peaked.

Henry Pryor, housing analyst, said that HSBC's latest offering showed how keen lenders have become to find new business.

"For me it’s yet another indication that the market has topped out so as a professional buyer I’m makings sure that deals I’m negotiating today can’t be beaten if the market does fall," he said.

HSBC is offering up to £500,000 on a fixed interest rate of 1 per cent for two years. The mortgage is expected to attract borrowers who have a 35 per cent deposit or equity in their home and are looking for a low rate with a well-known high street brand.

The number of UK residential property transactions has decreased significantly in April and May (Getty)

Rachel Springall, finance expert at Moneyfacts.co.uk, said that borrowers could reduce the amount they repay by overpaying on the mortgage in the two years of low interest.

"Borrowers would be wise to take advantage of the option to overpay their mortgage whilst interest rates remain so low, this way they can increase the amount of equity in their home and reduce the term of the loan," Ms Springall said.

HSBC allows overpayments up to a maximum of 10 per cent of the mortgage balance each year.

Duncan McCann, researcher at the New Economics Foundation, said that bank stability is safe even if there is a drop in house prices of up to 35 per cent because of the large deposit HSBC requires.

Such a large lump sum up front might also deter new buyers, with the most likely custom coming from those who already have the 35 per cent deposit but want to switch to lower rates.

Experts say the HSBC deal shows that the housing market is counting on interest rates staying at 0.5 per cent for the foreseeable future. Banks may be trying to use persistently low rates to generate positive publicity by offering lower fixed rates.

"This product really seems aimed at is getting HSBC positive publicity by offering the lowest fixed rate ever without doing anything to address any of the issues to do with the housing crisis," McCann said.

"Banks want to be seen to be helping people when this will do nothing for those who were not already in the privileged position of having a 35 per cent deposit and the £1,499 fee at hand," he added.

Guy Anker, managing editor of MoneySavingExpert, agreed that many people won't qualify for the deal.

"We’ve seen rates like this before but for variable rate mortgages. But it’s difficult to get as excited about a mortgage as a savings account because so many people won’t qualify. It’s as tough as it’s ever been to get a mortgage. Anyone looking for one should contact a broker," he said.

The new HSBC deal comes one month after Barclays launched the first 100 per cent mortgage since the financial crisis.

The offering removed the requirement for first-time buyers and home movers to provide a 5 per cent deposit in what experts called a "financial grenade".

The number of UK residential property transactions has decreased significantly in April and May, according to figures released by HM Revenue and Customs.

During the general election month of May 2015, there were 101,850 property transactions in the UK. In April 2016 this slipped almost 15 per cent to 88,400.

"Buyers are sitting on their hands now afraid that what they buy today may be cheaper tomorrow," Pryor said.

"Estate agents have even retreated to the last desperate sales quip 'it doesn’t really matter what happens to prices, you’re buying a home' which we all know means our instincts are probably right."