HSBC restores 90 per cent loans

HSBC IS to offer £1bn of new mortgages to borrowers with deposits of 10 per cent or more of the value of their properties, prompting speculation that the logjam at this end of the home loan sector may finally be easing.

The bank will next week launch a range of variable, fixed and tracker rate mortgages to borrowers looking for mortgages with "loan-to-value" ratios of up to 90 per cent. It is the first major lender to allocate sizeable sums to this end of the market for more than a year.

Home loan providers nervous about falling house prices and the deteriorating economic environment have until now required new borrowers to come up with much larger deposits, which has caused first-time buyers in particular great difficulty.

However, Joe Garner, HSBC's group general manager of personal financial services, said the bank was now sufficiently optimistic to return to this type of lending. "Although house prices have fallen, and continue to fall, they won't fall forever," he said.

The new mortgages are priced at significantly higher rates than the Bank of England's base rate, which is currently 0.5 per cent. HSBC's two-year fixed rate costs 4.99 per cent, for example, while its lifetime tracker deal is priced at 4.59 per cent. The mortgages also carry arrangement fees of up to £1,499 and are only available to customers who hold premium-rate bank accounts with HSBC.

However, while the restrictions and fees will limit the number of people able to apply for HSBC's deals, mortgage experts welcomed the move as further evidence that the deep freeze in the home loan market for people needing higher loan-to-value multiples was beginning to thaw.

David Hollingworth, of London & Country, the independent mortgage adviser, said: "It's not exactly price war time, but if someone as major as HSBC is prepared to do this, other big lenders will at least have to think about following suit."

HSBC's move follows a new launch last week from Royal Bank of Scotland, which offered a single five-year mortgage deal for LTVs of up to 90 per cent. Halifax has also tested the market with very limited product offerings.

However, the number of deals available to borrowers with smaller deposits remains tiny compared with a year ago. Moneyfacts, the personal finance analyst, said the number of 90 per cent LTV loans on offer had fallen every month during the year to March. At the end of February 2008, there were almost 1,200 such mortgages available to borrowers – by last week that figure had fallen to just 93.

"HSBC's move is certainly encouraging," Mr Hollingworth added. "This probably does not mark the onset of a slew of new deals coming out at 90 per cent LTVs, but other lenders will have taken note."

While HSBC has not, unlike rival lenders, had to rely on financial support from the state in recent months, it has come under pressure to increase its mortgage lending. The £1bn allocated to these deals is part of the £15bn HSBC intends to lend this year, which is about twice as much as the bank lent in 2007 when the housing market remained buoyant.