Fancy fixing your mortgage at 2.49%? It may sound like a great deal, but there are some big strings attached, as John Fitzsimons found out...
Don't you just love those cuddly guys at HSBC? The world's local bank has announced the relaunch of its mega-successful Rate Matcher mortgage deal, promising to help borrowers fix their mortgage for as low as 2.49%.
Yes, you read that right - 2.49%. For a limited period, HSBC is offering to match - or even beat - the mega-low Standard Variable Rates (SVRs) that many borrowers are currently enjoying, and fix them for up to five years.
Who qualifies for the Rate Matcher?
The offer is open to borrowers either on the SVR already, or coming to the end of their existing mortgage deal (you can delay drawing the mortgage down for six months, which is pretty unique, and you won't have to hand over the fee until you drawdown the mortgage).
So you can nab yourself a great rate, delay paying the fee and avoid paying any early repayment charges!
Last time out, HSBC only made its Rate Matcher proposition open to borrowers coming off fixed rates. However, this time it is open to borrowers irrespective of what type of mortgage they are leaving.
How does it work?
Now, how does this Rate Matcher malarkey work? Basically, you have three variables:
- interest rate,
- the length of the fixed period, and
- the loan-to-value.
You can use these three variables to build your best possible mortgage.
Obviously, there are limits on how to mix these variables - that ultra low 2.49% rate is only available on a two-year fixed rate mortgage for example.
You can work out what options are open to you by using the Rate Matcher calculator on the HSBC website (though annoyingly it is not going to be up and running until Monday 8th June). But be warned - the combination you choose determines the size of the fee you will pay. But more on that later!
Too good to be true
Now, this all sounds too good to be true doesn't it? Well, to an extent it is. Yes 2.49% is very low, but what sort of maniac is taking out a two-year fixed mortgage at the moment?!
The most sensible course of action at the moment is to fix for the long term - interest rates are only going up over the next couple of years, and it is lunacy to sign up to a short-term deal, as we explained in Protect yourself from mortgage rate hikes.
In addition, the fact that the deal is only open to borrowers with a maximum mortgage of £250,000 and a minimum deposit of 25%, means few people can actually apply.
Putting the Rate Matcher to the test
Let's have a look at the examples HSBC themselves have used to demonstrate how good this initiative is. First up, they quote a £100,000 mortgage fixed for three years at 3.89%, with a 25% deposit. This carries a fee of £799.
Its nearest rival is a three-year fixed from sister firm First Direct at the same rate, but with a slightly higher fee. So round one to HSBC.
But what about the five-year fixed deals - which, in my view, is the best type of deal to go for in the current market?
Well, HSBC quote two separate examples. The first is a £120,000 mortgage at 4.34% up to 75% loan-to-value. Its nearest rival is a fellow HSBC deal at 4.39%.
However, while the latter product carries a fee of £999, the Rate Matcher version will set you back a whopping £1799 - an extra £800!
And with HSBC you cannot add the fee to the mortgage; it all has to be paid up front. Best get saving, then...
The second example is a five-year fixed at 4.44% on a £250,000 mortgage, with a 40% deposit, and a fee of £699. However, Chelsea Building Society actually offer a cheaper deal at 4.34%, and while the arrangement fee is higher at £995, it requires a smaller deposit of 35%.
In this example, that means the deposit you would need drops from around £166,000 to just under £154,000 - a saving of £12,000. Well worth the extra £296 you have to fork out upfront, if you ask me.
Matching mortgage rates but not service
Let's not forget that last time HSBC launched its Rate Matcher, it was hit by some pretty significant service issues. It simply was not set up for the swathe of business that came its way, with a number of borrowers soon losing patience and heading elsewhere.
I'd be staggered if they have not learnt their lesson and ramped up their backroom staff, but the proof will be in the pudding.
At the moment, our brokers tell us it is taking 12 weeks for HSBC to process a mortgage from start to finish - that's a long time to wait, especially if you're in the middle of a house purchase.
Yes, this is a great scheme - it would be folly to try to deny that. And HSBC deserve huge credit for their commitment to ramping up mortgage lending at a time when their rivals are pulling back.
But be sure to do your sums carefully before you sign up. If something looks too good to be true, it invariably is.
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