Mon 20 Oct 2014 View all news articles
One of Britain’s biggest banks will cut mortgage rates to an “astonishing” 0.99 per cent, a record low, igniting a price war that will reduce the cost of home loans by thousands of pounds.
The new loan from HSBC is the cheapest ever in Britain, mortgage experts said, and indicated that the housing market could boom again after a summer lull.
It comes after the Bank of England said on Thursday that interest rates could stay low for longer due to “gloomier” forecasts for the global economy.
Mortgage brokers said someone borrowing £150,000 could cut monthly repayments by £3,500 a year by switching to the new deal. The saving could rise above £10,000 for borrowers with larger homes.
Borrowers should expect a flurry of “headline-grabbing” deals, experts said, with banks competing fiercely for custom as the year drew to a close.
David Hollingworth of brokerage London & Country said: “This is a massive price cut, it’s an astonishingly low rate and will allow some families to cut huge amounts off their bills.
“The summer is always quiet in the property market, but now lenders are are showing an appetite to fight for business - and that competition is excellent news for home owners and property prices.”
The Bank of England, invoking a cricketing metaphor, said it would play “on the back foot” as it planned its next interest rate rise.
Andy Haldane, one of nine policymakers who decides Bank Rate, said low wage growth in Britain, falling oil prices and global “risks”, such as geopolitical tensions in Ukraine, Hong Kong and the Ebola crisis, had made him “gloomier" about the prospects for the economy.
"Interest rates could remain lower for longer, certainly than I had expected three months ago,” he said in a speech in Kenilworth.
The 0.5 per cent Bank Rate to now expected to rise in late 2015, rather than the spring, allowing borrowers to enjoy lower costs for longer.
Mark Harris of mortgage brokerage Anderson Harris said that gave the green light for lenders to reduce loan rates to new lows.
Within six months, borrowers might be able to lock into a five-year fixed-rate deal at less than two per cent, he said, marking a significant reduction from 2.59 per cent today.
If better mortgage deals stimulated activity in the housing market, the experts said, it could fuel house price rises.
Figures this week gave further indication of a slowdown in the pace at which property prices were rising. Prices had risen 11.7 per cent in a year, according to the Office for National Statistics, valuing the average property at £274,000. House prices in London were still rising faster than the rest of the country, increasing 19.6 per cent in 12 months, the ONS said. Its data followed a survey from Nationwide Building Society that indicated prices fell slightly in September.
Martin Beck, an economist at the Ernst & Young ITEM Club, said: “In isolation, falling mortgage rates and an imminent price war could spur demand and certainly act to boost the housing market.
“But there are factors cooling the market that are impossible to ignore, with surveyors reporting the number of houses on sale falling and fewer people looking to buy.
“House prices, for many people, have risen so high that they've lost interest - but more affordable mortgage rates could stop this holding back demand."
The Bank of England has warned a bubble in house prices could tip the UK back into recession if it expands too quickly.
A concern that home buyers were over-stretching themselves led the Bank to limit the number of people borrowing more than four-and-a-half times their salaries. Borrowers, it has said, may also be asked to find larger deposits.
HSBC’s 0.99 per cent loan is available from Monday, provided borrowers have a 40 per cent deposit or equity in the property.
The cost is linked to the bank’s standard variable rate (SVR) of 3.94 per cent. It is effectively a 2.95 per cent “discount” from that rate, lasting for two years. After that, borrowers will need to remortgage or their costs will rise.
A spokesman for HSBC said the SVR was only likely to rise within the two-year period if Base Rate increased, probably by a similar amount.
Mr Hollingworth warned that the “catch" with the deal was a £1,999 set-up fee, which he described as “high”. As a result, it was more suited to people borrowing large amounts, he said.
On a £150,000 loan, monthly repayments would be £565, compared with £855 on a lender’s typical standard variable rate, reducing annual bills by £3,480. Someone borrowing £500,000 - the maximum amount allowed by HSBC on its new loan - could cut costs by £11,628 a year.
The next best deal was a 1.44 per cent rate from Norwich & Peterborough, Mr Hollingworth said. The monthly cost of £596 was £31 more expensive than the HSBC deal for someone borrowing £150,000. However, the fee was just £345.
Fewer mortgages were issued over the summer due to the introduction of strict rules that required lenders to delve into borrowers’ spending habits to check they could afford the repayments if interest rates rose.
However lenders, under pressure to meet their end of year targets, were likely to increase their ranges of mortgages in the autumn and winter, experts said.
Rachel Springall of financial information website Moneyfacts said: "We are likely to see more headline-grabbing deals as the year comes to a close.”
As leading Wirral estate agents and lettings agents we have plenty to talk about and like to give our opinions on a few things too! Read about what we have to say, our latest news and industry news.