New mortgage deals for first-time buyers

HSBC has allocated £1bn to a new 90% LTV mortgage range -- but they are not for everyone.

For the last 18 months higher loan-to-value mortgages (where the buyer has a small deposit) have been hugely expensive, prohibiting many potential first-time buyers from getting a deal.

While some competition has remained at the low-risk, low-LTV end of the market, those with only 10% upfront get what they are given -- even with the Base Rate at a historic low.

So yesterday's news that HSBC has allocated £1bn of funding to a new range of high LTV mortgages was very interesting indeed.

What has the lender done?

HSBC announced yesterday it would launch a new range of mortgages with maximum LTV of up to 90% -- indeed most of the range is available at this level. The prices are keen, at least compared to what we are used to at 90% and the funding is generous at £1bn.

The new 90% LTV deals:

• The headline two-year fixed rate is 4.99% with a pretty steep fee of £1,499.
• Or borrowers can choose a lower fee, higher rate combination -- 5.49% with a £199 fee.
• For those who do not want to fix and would prefer a variable rate the lender has a tracker mortgage at 4.59% -- the only tracker currently available at 90% LTV. It comes with a fee of £999.

In addition, HSBC has also launched a couple of deals with lower LTVs:

• A three-year fixed rate at 3.99% up to 75% LTV with a fee of £599
• And a two-year discounted rate at 2.49% up to 60% with a fee of £249

Any downsides?

Aside from the large fee on the headline two-year fixed rate, there are some significant restrictions.

The biggest is that the deals are only available to HSBC Plus and Premier customers -- although the bank 'generously' says that other customers are welcome to open a Plus or Premier account with them.

That will set you back £12.95 a month (with the first three months priced at £9.95), so about £146 for the first year, and £155 a year thereafter. In other words, you need to do your sums. If there's another mortgage you are interested in, see if any of the HSBC deals beat it by around £150 a year, taking into account all fees and costs as well as rates. If not, it may not be worth bothering with, unless of course you are in the market for a new packaged current account, or an existing Premier or Plus customer.

Secondly, these products are only available to homebuyers, so remortgagors will not be able to access them. While this is a pity for those remortgagors who have seen their property price fall, plunging them into a higher LTV mortgage bracket, frankly they do not account for the majority of borrowers at 90% LTV. It's first-time buyers that really need encouragement back into the market and this range is firmly aimed at them.

Thirdly, the maximum loan size is fairly low at £400,000, but this still encompasses the majority of borrowers.

And finally, the deals are only available through HSBC's branch network, not over the phone or online. While this may seem like an inconvenience, the lender says that customers will be taken through the implications of borrowing in detail (though why this can't be done over the phone is not clear). Perhaps HSBC simply wants to tightly control the distribution of these products through branches.

Anyway, HSBC's branches are widely accessible so it's not hard to sign up for an HSBC mortgage if you want one.

Why has HSBC launched these deals?

This £1bn high LTV range is part of HSBC's £15 billion fund it has allocated for new mortgage lending in 2009: twice what it lent in 2007.

The lender says that the new deals reflect its commitment to continue lending to UK homeowners at competitive rates, and that it wants its first-time buyer customers to be able to take advantage of the falling cost of borrowing.

As for all the restrictions, the lender would be deluged with applications if it didn't have strict borrowing criteria, since the rates are much better than anything else on offer at this LTV. So while borrowers might have to jump through a few hoops to get hold of one of the new deals, the fact that a lender has launched such rates at 90% LTV is in itself a step in the right direction.

To show the disparity, below are some of the next best 90% mortgages, without quite so many catches -- remember that HSBC's new headline rate is 4.99%:

Anyway, although HSBC's deal may not be perfect, but it's fair to say that things are beginning to look up for first-time buyers.

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More:  Grab a fixed rate mortgage while they're cheap