HSBC and First Direct launch top new fixed rate mortgages

HSBC and First Direct have shaken up the mortgage market with extraordinary new market-leading fixed rate mortgages.

HSBC and First Direct have launched market-leading mortgages this week, but you will need to move quickly to bag them. Both are on offer for just a limited period, and only available to direct applicants – not through a mortgage adviser.

The good news is that one of these best buy deals is available to borrowers with just a 10% deposit, so it’s ideal for first-time buyers looking for an affordable homeloan, and will hopefully help to drive competition in this sector of the market.

The other mortgage is targeted squarely at remortgagors as it requires a very large deposit of 35% - but comes with an extremely low rate.

Picking the length of your fixed rate term

The first best buy is from HSBC, and is the lowest ever seven-year fixed rate mortgage available up to 90% of the property’s value at 4.89%.

It comes as part of a new range of fee-free first-time buyer and home mover mortgages from the lender, all with exactly the same rate of 4.89%. The deal is that the borrower chooses their preferred fixed rate duration - two, three, five or seven years. And there are no arrangement fees on any of the mortgages.

HSBC is also offering a fee-free lifetime tracker for borrowers with just a 10% deposit at 4.49% (base rate plus 3.99%).

The new range is available for a limited period only with all applications needing to be made before 14th October, plus the lender reserves the right to withdraw the deal sooner. So if you fancy one of these mortgages, don’t delay.

HSBC has pledged to lend £4 billion to first-time buyers in 2012. These new deals are clearly going to attract attention and hopefully throw down the gauntlet to other large lenders to improve their first-time buyer offerings.

But while they are great options for first-time buyers, the fee-free deals are also available to home movers. This will be particularly useful for those second steppers with only a small amount of equity in their homes who are currently struggling to upgrade to a larger home.

Remortgagors can also access the same rates, although they will have to pay a £599 arrangement fee.

The big question is, can the deals be beaten?

Top of the mortgage pops

For borrowers choosing HSBC’s seven-year fixed rate mortgage, the rate of 4.89% with no arrangement fee is market-leading, and indeed the lowest ever (though to be fair not many lenders have a wide range of seven-year fixes so there isn’t much competition!)

Remember that fixing for this long is a big commitment and you will be subject to early repayment charges if you need to escape your mortgage before the seven years are up.

The five-year deal is also a best buy when you factor in the fact there is no fee to pay and the deal is also available to homebuyers (as well as first-time buyers), although NatWest has a slightly better fee-free deal at 4.79% that is available to FTBs only. And if you are willing to pay a £999 fee, HSBC also has a 4.79% five-year fix up to 90% LTV that's worth a look.

It is possible to find cheaper two- and three-year fixed rates, although these deals come with standard fees. For example First Direct and Hanley Economic Building Society both offer a two-year fix up to 90% at a rate of 4.29%, with  fees of £999 and £900 respectively.

And the lifetime tracker is also a best buy when you compare it to the rest of the market on a like-for-like basis, although cheaper variable deals are available if you are happy with a discounted rate that is pegged to your lender’s SVR.

The remortgagor’s super-low rate

The second best buy mortgage is a three-year fixed rate offset mortgage for borrowers with a chunky 35% deposit, and comes from First Direct.

The deal is fixed at an extremely low 2.74% for three years and comes with a sizeable mortgage arrangement fee of £1,499. According to the lender it’s the lowest three-year fix (across both offset and non-offset deals) since 2007.

The deal is a limited offer and First Direct says it is only available while funds last.

Any good?

This mortgage has some great features – firstly, the rate is extremely low. Monthly repayments on a typical £150,000 mortgage would be just £343 on an interest-only basis.

In fact, it is very important to understand that First Direct’s offset mortgages are only available on an interest-only basis. This means that your monthly repayments only cover the interest to the lender and at the end of the term the mortgage owed is repayable in full. In addition to your repayments to First Direct you need to make payments into a separate plan, such as an endowment or an ISA, that will (hopefully) grow by enough to repay the outstanding mortgage. But there are no guarantees.

The fact that the deal is an offset mortgage is a great benefit for those who want such a flexible deal. The ability to offset your savings is especially useful for higher rate taxpayers, borrowers with a large savings pot or those who want to maintain access to their savings while effectively overpaying their mortgage.

Find out more about the benefits of offsetting on our Offset Information page, and take a look at Neil Faulkner’s opposing view on offsets in Why offsetting won’t save you money.

If you are looking for a new deal, whether you have a small or a large deposit, below are some of the cheapest rates around right now.

Top 90% mortgages

Great sub-3% deals

*available to current account and existing mortgage borrowers moving home only

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage

More on mortgages:

What's your property worth?

Second charge mortgages: pros and cons

Santander to hike SVR mortgage rate to 4.74%

Manchester Building Society launches 25-year fixed rate mortgage