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HSBC is offering a record low two-year fixed-rate mortgage of 1.29%
HSBC is offering a record low two-year fixed-rate mortgage of 1.29% Photograph: Jonathan Brady/PA
HSBC is offering a record low two-year fixed-rate mortgage of 1.29% Photograph: Jonathan Brady/PA

Mortgage price war reaches new intensity as banks launch record-low fixed-rate deals

This article is more than 9 years old
With inflation and interest rates unlikely to rise sharply lenders HSBC is tempting borrowers with record low two-year deal of 1.29%

Low inflation and expected delays in lifting interest rates have raised the prospect of a fresh mortgage price war after HSBC and First Direct launched cheap fixed-rate deals.

The new mortgages prompted one leading broker to say the pricing of fixed-rate home loans had reached “new record lows” as lenders continue to battle for custom despite new lending curbs and signs that a recent boom in the housing market is coming off the boil.

HSBC’s new deals include what may be the lowest ever two-year fixed-rate home loan, priced at 1.29%. This deal is restricted to customers with a 40% deposit and it includes a fee of £1,499, but it trumps the bank’s previous offering priced at 1.49%.

HSBC’s subsidiary First Direct has also launched cheap fixed-rate mortgages, including a loan fixed at 2.39% for five years. This is understood to be the lowest ever five-year fix, cheaper than a 2.44% deal offered by Yorkshire building society last year. However, the First Direct loan will not be open to all borrowers; the maximum loan-to-value is 65%, and it includes a £1,450 fee.

First Direct has also launched a three-year fixed-rate mortgage at 1.99%, which is well below what many other lenders are charging, and has become the latest bank to move into offering 10-year fixed-rate deals. Banks and building societies have been rushing out decade-long fixed-rate mortgages, with experts attributing this to plunging inflation and a growing expectation that interest rates will stay low for longer.

The moves by HSBC and First Direct come as competition in the mortgage market has pushed many rates to the lowest on record. The price cuts have tended to centre on fixed rates, which have been hugely popular with borrowers lately because of the certainty they provide. At some points in recent months about nine in 10 of new mortgages have been taken out on a fixed basis.

“Some of the rates on offer are very attractive,” said David Hollingworth of mortgage broker London & Country. Adding that fixed rate mortgages have reached new record lows, he said: “I think it indicates a continuation of the trend that fixed rates are falling. There are a lot of very attractive deals out there, and lenders are competing hard.”

UK base rate has been at an all-time low of 0.5% since March 2009, when the Bank of England slashed borrowing costs in response to the financial crisis.

Rates have remained low despite the economic recovery, with gross domestic product rising every quarter since the beginning of 2013 and unemployment falling more rapidly than expected.

The Bank’s rate-setting monetary policy committee (MPC), led by the governor Mark Carney, has made it clear it wants to see the prospect of sustainable growth in real wages before raising rates.

At its most recent quarterly inflation report in November, the MPC signalled rates could be left on hold until autumn 2015, partly because inflation – already at only 1% on the consumer prices measure – is expected to fall further, taking it even more sharply below the Bank’s 2% target.

The new deals offered by HSBC and First Direct follow signs in recent months that the housing market is cooling slightly compared with the highs achieved earlier in 2014.

The pace of house price growth slowed sharply in the last three months of the year, according to the Nationwide building society, though prices ended the year 8.3% higher than in the same period of 2013.

In June the Bank of England announced the first limits on the mortgage market in 30 years amid mounting fears that the property market was in danger of overheating. House prices in London rose 17.8% last year and are now 35% above their previous 2007 peak according to Nationwide. Sharp rises were not limited to the capital, with prices up 25% in St Albans in 2014, 19% in Reading and 17% in Belfast.

Despite the fears of a housing bubble, the chancellor, George Osborne, appeared to offer further support to the property market in December when he cut the rate of stamp duty for lower-value house sales in his autumn statement. He said 98% of people paying stamp duty would pay less as a result of the measure.

More on this story

More on this story

  • Mario Draghi says ECB is ready to pump more stimulus into eurozone economy

  • Mortgages: are you ready for a 10-year fixed rate?

  • George Osborne is obsessed with the deficit – pity it’s the wrong deficit

  • Lowest-ever 10-year mortgage deals launched as inflation falls

  • Bank of England: half a million housebuyers face mortgage arrears

  • UK just pips France to fifth place in global economies league table

  • Who’s the perfect money saver … year in, year out?

  • UK manufacturing growth falls to three-month low

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