HSBC 'Rescue' Mortgage Is Now A Rip-Off

Sadly, for fixed-rate borrowers, HSBC's Rate Matcher Mortgage is no longer a lifeline.

Last week I wrote about HSBC's Rate Matcher Mortgage in Last Chance For HSBC `Rescue' Mortgage, which is being withdrawn on Sunday*. The deal guarantees to match the rate on your existing fixed-rate mortgage, protecting you from payment shock.

Although that sounds great in theory, the mortgage deal now comes with a major pitfall. At the eleventh hour, HSBC has hiked up the booking fees. This is to such an extent that -- for most borrowers -- whatever you would save by keeping your two-year fixed rate the same will be completely wiped out by an astonishingly high upfront fee.

When HSBC extended the Rate Matcher deal in mid-May, it claimed two-thirds of customers would pay fees of £999 or less. But anyone taking the deal now is more likely to pay a fee that runs to thousands. Worse still, it has to be paid up-front. There is no option to add it on to your mortgage loan, meaning borrowers will need plenty of ready cash.  

Rip-off fees

So let's take a look at a few examples of these rip-off charges. The maximum loan available under Rate Matcher is £250,000** and the minimum rate HSBC will match is 4.79%. If you were to borrow this amount at that rate, the booking fee will set you back a staggering £7,699.

Yes, you read it right: Seven thousand, six hunded and ninety-nine pounds.

And it's not just borrowers wanting the best rate who will be asked to hand over a small fortune. Just last week, a mortgage loan of £145,000 with a rate matched at 5.24% would trigger a fee of only £599. But now, the fee has been stepped up to a whopping £3,199. That's over five times more than its original level.

HSBC maintain it is still possible to get the minimum £599 fee. And this is true. It would apply, for example, if you had a tiny outstanding mortgage of £20,000, with a rate matched at 5%. But that hardly fits the profile of the average borrower.

Likewise, if you had a more typical mortgage of £150,000 and a rate of 6.29%, you would again only be charged £599. But that rate isn't particularly competitive, so why keep hold of it at all?

Of course, many will not realise that what they are being offered by HSBC is now uncompetitive. The bank has had a lot of good publicity about Rate Matcher and it will only deal with customers directly. This means none of HSBC's customers have had the benefit of professional, unbiased mortgage advice when comparing the market. (That's the danger of going direct and one reason why, here at The Fool, we think using a whole-of-market mortgage broker can be a good idea.)

HSBC said customers who would be charged a booking fee of more than £5,000, should seek advice from one of the lender's `mortgage managers'. A recommendation for an alternative -- and more competitive -- HSBC mortgage product will then be offered (but as tied advisers they will only recommend HSBC deals).

For me, that's a real warning sign if even HSBC admit the fees have become excessive.

So why has Rate Matcher become so expensive?

HSBC blames the rising cost of funding mortgages. Recently, swap rates -- which determine the cost of fixed rate borrowing for lenders -- have climbed to a new high. This means it's more expensive for lenders to acquire funding for fixed-rate loans, and therefore more expensive for you.

Since HSBC doesn't have the option of raising fixed rates to meet these additional costs, the alternative is to step-up the booking fees. Personally, I think it would have been better to withdraw the deal from the market early now it has become uncompetitive, but it seems HSBC prefer to protect their profits by raising the fees.

Has Rate Matcher achieved its goal?

Almost certainly, for HSBC! The bank estimates its market share has tripled off the back of Rate Matcher's popularity. It's relatively small share of 3% has now shot up to around 9%. This is a pretty phenomenal rate of growth, given that the deal has only been available for the last eleven weeks.

So it seems the lender has achieved what it set out to do and established itself as a more serious mortgage player.

But this isn't much comfort if you're faced with losing your low fixed-rate when your deal comes to an end. While Rate Matcher was certainly worth considering in its early days, the deal is now effectively already over.

So it's probably sensible not to waste any time on it, when you could be missing out on the perfect mortgage somewhere else. Bear that in mind, because the best-buy deals are disappearing faster than you can screech, "I'll take it!"

*Rate Matcher will be available to HSBC's existing fixed-rate mortgage customers until the end of August.

**Existing HSBC customers can borrow up to £500,000.