Yet another record low fixed rate mortgage has been launched, as lenders slash rates to win your business. So how does HSBC's new mega-low two-year fixed rate shape up?
Another week, another set of headlines screaming that the ‘lowest ever’ fixed rate mortgage has been launched.
And today’s record low mortgage rate has undercut the competition to shoot straight to the top of the best buy tables.
So what have we got this time, and is it worth getting?
Super-low rate
HSBC has launched a new range of mortgages, and the star of the show is a two-year fixed rate at a staggering 1.79%.
This is the lowest two-year fixed rate ever launched in the UK. And it doesn’t stop there. The new range also includes:
- A five-year fix at 2.78%
- A seven-year fix at 3.49%
- A ten-year fix at 3.99%.
Plus, for those who don’t want to lock into a rate there is a two-year discounted mortgage at just 1.75%.
Make no mistake these are some eye-catching mortgage rates, all either best buys, or pretty darn close.
So what’s the catch?
The bad news
The first bit of bad news if you like the look of these mortgages is that they are only available to borrowers with 40% upfront, either as a deposit or equity, or a combination.
That excludes a huge swathe of borrowers, including a lot of first-time buyers, and many second steppers who bought in the last five years and haven’t amassed more equity in their home as a result of stagnant house prices.
However, this is nothing unusual. All lenders reserve their best rates for their lowest risk borrowers and, to be fair to HSBC, the lender has also launched a new range of competitive deals for those with a smaller deposit today. They may not grab the headlines in the quite the same way as the lowest ever two-year fix, but they are keen rates nonetheless.
However, there is another sting in the tail. The new super-low rates all come with an arrangement fee of £1,999. Ouch!
Average arrangement fees have rocketed recently, increasing by 70% in the last four years alone to just over £1,500, according to Moneyfacts. But the £2,000 price tag of the new HSBC deals is particularly steep.
Should the fee put you off?
[SPOTLIGHT]Not necessarily. A high fee can render a low interest rate less attractive when you start working out the total cost of a deal, but that is very dependent on the size of the mortgage and your circumstances. The more you are borrowing the more important a low interest rate, even if you need to pay a large fee to bag it.
For example, say you are borrowing £300,000 over 25 years. The HSBC 1.79% rate results in monthly repayments of £1,241, which would amount to £29,784 over the two-year fixed period. Add on the large £1,999 fee and you would have paid £31,783 in total over the 24 months that your rate is fixed for.
Let’s compare this to the second lowest rate, which is slightly higher but comes with a lower arrangement fee. This is a two-year fix at 1.89% from Chelsea Building Society, with a fee of £1,695 – still not cheap but over £300 less than the HSBC mortgage.
However, this fee saving is outweighed by the amount you will save in monthly repayments with the lower rate. The 1.89% Chelsea deal will cost you £1,256 a month, which is £30,144 over two years. Even when you add on the lower fee of £1,695 the total cost - £31,839 - is still more with the slightly higher interest rate.
On the large mortgage, the lower rate works out cheaper over two years.
What if you only require a small mortgage?
In this case it might be worth paying a slightly higher rate of interest to benefit from the lower arrangement fee.
For example, if you are borrowing a modest mortgage, say £75,000, the HSBC 1.79% deal would result in very low monthly repayments of £310. Over the two-year fixed period that’s £7,440, plus the £1,999 fee means a total amount paid of £9,439.
However, the next lowest two-year fix, 1.89% from Chelsea Building Society, would mean a minimal difference in monthly repayments at £314. This totals £7,536 over two years, but Chelsea’s lower fee of £1,695 means that the total amount paid actually works out cheaper at £9,231.
On the smaller mortgage the higher interest rate actually works out cheaper over two years because it comes with a lower fee.
In general, the larger the mortgage the more important the interest rate.
Of course, some people do not want to focus on the cheapest deal for them over two years, and prefer to lock into a mortgage rate for longer. You will pay a premium to fix for five years for example, but in the current market rates are still exceptionally low for those looking for medium-term value.
The lowest five-year fixed rate on the market is currently 2.64% from Yorkshire Building Society, which comes with a hefty fee of £1,495. However, the Cooperative Bank currently has a five-year fix that is only slightly higher at 2.79% and comes with no arrangement fee whatsoever – one of the best all-round deals currently available in my opinion.
Below are some of the lowest rates on the market right now:
Super low mortgage rates
|
Lender |
Type of deal |
Rate |
Fee |
Max LTV |
|
Two-year fix |
1.79% |
£1,999 |
60% |
|
|
Two-year fix |
1.89% |
£1,695 |
60% |
|
|
Two-year fix |
1.99% |
£995 |
60% |
|
|
Term tracker |
2.38% |
£1,699 |
65% |
|
|
Term tracker |
2.38% |
£1,499 |
60% |
|
|
Two-year tracker |
2.44% |
£995 |
75% |
|
|
Two-year fix |
2.49% |
£995 |
75% |
|
|
Five-year fix |
2.64% |
£1,495 |
60% |
|
|
Three-year fix |
2.59% |
£995 (£499 for first-time buyers) |
70% |
|
|
Five-year fix |
2.69% |
£1,999 |
65% |
|
|
Five-year fix |
2.78% |
£1,999 |
60% |
|
|
Two-year fix |
2.79% |
£599 |
80% |
|
|
Five-year fix |
2.79% |
Fee-free |
60% |
|
|
Five-year fix |
2.74% |
£995 |
60% |
|
|
Five-year fix |
2.89% |
£1,695 |
75% |
|
|
Five-year fix |
2.98% |
£995 |
75% |
|
|
Five-year fix |
2.99% |
£995 |
75% |
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At Lovemoney, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free Lovemoney 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), 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.
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