HSBC has launched a new fixed rate mortgage with an interest rate below 1%, as competition between lenders heats up.
The two-year fixed rate mortgage has an interest rate of 0.99%, the lowest since records began.
The product has a £1,499 product fee and borrowers will need to have a deposit of 35%. The maximum loan is £500,000.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “This offering is likely to attract borrowers who have a 35% deposit or equity in their home and are looking for a low rate with a well-known brand. As with any deal, applicants should always work out the true cost of the mortgage to decide whether it’s right for them.”
“Borrowers would be wise to take advantage of the option to overpay their mortgage whilst interest rates remain so low, this way they can increase the amount of equity in their home and reduce the term of the loan.”
According to Moneyfacts.co.uk, average fixed rate mortgages have risen from 2.55% to 2.81% since last month.
Andrew Hagger, an independent analyst at Moneycomms, said: “It’s not until you read the small print that you realise there’s also a fee of £1499 to pay for this mortgage – on a product that only lasts two years – so in effect that’s an extra £62.46 per month on top of your mortgage payment.
“Whether this deal is as good as it looks will depend on the size of your mortgage – if you’re borrowing £220,000 or more then it makes financial sense but for smaller sums there are cheaper alternatives.
“For example, if you only needed £150,000 then if you opted for the two-year year fix from Norwich and Peterborough Building Society at 1.49% with a much smaller £195 fee – over the course of two years it works out £464 cheaper than the HSBC 0.99% offer.
“It just emphasises the need to take the headline deals with a pinch of salt and to ensure that any comparison is based on the total cost and not the interest rate in isolation.”
The news comes after the Bank of England said last week it was keeping interest rates at the record low of 0.5%, where they have been since 2009.
The Bank suggested it could cut the base rate in the coming months, especially if Britain decides to leave the EU.
Since the financial crisis in 2008 mortgage rates have steadily fallen.
Chris Pilling, chief executive of Yorkshire Building Society, said earlier this year that mortgage rates could drop below 1% for the first time.
With lenders slashing rates, experts believe there has never been a better time to get a mortgage.
Nationwide has cut its fixed rate and tracker mortgages by up to 0.25%, while Halifax has reduced its rates on its first-time buyer mortgage range by 0.30%.
Newcastle Intermediaries has also launched a new two-year fixed rate mortgage for re-mortgaging customers at an interest rate of 1.99%.
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