Sub-1% mortgage rate war intensifies

A battle to slash mortgage rates below 1% has intensified, with HSBC UK now offering a deal at 0.89%.

The bank said the two-year deal, which requires a 40% deposit, has its lowest ever fixed mortgage rate.

Borrowers will need to stump up a fee of £999 to take it out.

HSBC UK is also offering a five-year deal below 1%, with a fixed rate of 0.99%, also for borrowers with a 40% deposit and a £999 fee.

The bank added that it has made improvements to its application process, with people able to access a “rapid” decision in principle tool online or on their mobile.

The tool can potentially provide a decision in as little as 10 minutes, HSBC said.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “Several big brands now offer sub-1% mortgages and if borrowers are comparing these deals it would be wise to approach a broker to assess the overall true cost.

“Interestingly, the latest cuts by HSBC mean they are the second lender to offer sub-1% five-year fixed mortgages, following Nationwide Building Society who were the first ever to do so on our records.

“Lenders are making notable rate cuts to their mortgage ranges to grab the attention of borrowers and bring in new business after the market endured an unsettled period due to the pandemic.”

Halifax is also offering a two-year rate at just 0.83%.

Ms Springall said some low rate deals may only be suitable for people who can meet certain eligibility criteria, such as having a big deposit. Borrowers also need to bear the fees in mind.

She said: “Borrowers may be better off elsewhere on a deal with a slightly higher rate but with a more reasonable fee and incentive package. It really does depend on their circumstances and what they are looking to borrow, so seeking advice is wise.”

At the other end of the mortgage market, the choice of low deposit deals has only recently started to grow generally after many “riskier” deals vanished in 2020.

HSBC UK did announce some rate cuts on new deals for people with 25% deposits on Tuesday, including a five-year fixed deal at 1.19%, with a £999 fee.

Ms Springall continued: “Most of the low rate deals are for borrowers with a decent amount of equity in their home, so there is more room for lenders to cut rates in the higher loan-to-value sectors.

“However, we have only recently seen product choice grow in this area of the market, after a significant drop due to the pandemic, so it may be a few weeks yet before lenders consider slashing their rates on higher loan-to-value mortgages and instead they may well just maintain their presence in the market or make minor tweaks.”