HSBC extends fixed-rate loan deals

HSBC has upped the stakes in the competitive UK mortgage market, becoming the first bank to allow its fixed-rate home loan customers to extend their deals at the same rates of interest for up to another five years.

The new "RateMatcher" policy will allow HSBC customers who are about to come to the end of a two, three or five-year fixed-rate mortgage to extend their fix for another one, two, three or five years at the same rate they are currently paying. Given that interest rates had been rising until July last year, the move will prevent some customers from having to switch out of their existing deal to a higher rate elsewhere. There has been increasing concern among debt advisers about the number of cheap-rate mortgages coming to an end this year.

Although customers taking up the "RateMatcher" offer will have to pay a fee, proportionate to the size of their loan and the length of the deal, the bank said this would be less than £500 for most of its customers.

Although HSBC's old fixed-rate deals were not the most competitive in the market, those who take up the new offer will have some of the most keenly priced mortgages available. For example, someone coming to the end of a three-year fixed rate deal will be able to continue on a rate of 4.99 per cent, whereas the best available three-year fixed-rate deal for new borrowers is currently about 5.48 per cent.

Furthermore, customers are almost certain to save on fees. For those who had chosen to switch elsewhere, there would almost certainly have been an exit fee, as well as additional valuation and legal costs to pay.

Martijn van der Heijden, HSBC's head of mortgages, said: "The Bank of England has warned debt repayments as a proportion of household income are at a 15-year high, and with 1.4 million homeowners facing steep increases in mortgage payments in 2008, this stretch is likely to become worse. To remedy this, HSBC's 'RateMatcher' offer is designed to smooth out the ups and downs of moving between mortgage deals, and to create a sustainable platform for homeownership."

Brokers broadly welcomed the move, but warned that the service may still not provide the best deal for all HSBC customers.

"Whilst HSBC indicate that they expect fees to be relatively low for most customers, the fee size will vary depending on the rate, term and possibly other elements including loan size," said David Hollingworth, of the independent mortgage broker London & Country. "It is therefore well worth making sure that the whole package adds up to the best value."