The HSBC have returned with a five-year fixed rate mortgage of 1.99 per cent with a high fee, but should you commit to such a long term?
A new five-year fixed rate mortgage from HSBC at only 1.99% has been re-launched and offered to those that have a 40% deposit and prepared to pay a £1,995 application fee.
For remortgage buyers currently on their lenders standard variable rate, switching to a new mortgage deal would help them to reduce the cost of monthly repayments.
The deal is fixed until 31 March 2021 after which the rate reverts to the standard variable rate, currently 3.94% which could rise with interest rates.
For added flexibility as with many mortgages, borrowers can repay 10% of the loan each year without penalty.
Despite the attractive sub 2% rate, the recent change in global economic outlook suggests interest rates are not going to increase any time soon.
Should you go for a fixed rate?
After rising earlier in 2015, mortgage interest rates have been falling as the global economy slows down and the Bank of England delays an interest rate rise from the current 0.5% level to possibly the start of 2017.
So should first time buyers, home movers and remortgage buyers and buy-to-let landlords stick with a fixed rate mortgage or consider a tracker or discounted rate.
The equity release mortgage buyer can secure fixed rates typically from 5.8% upwards without any evidence of earnings, important for borrowers with only pension income.
The advantage of a five-year fixed rate is your mortgage payments will not increase over this period of time and you only have to pay for one arrangement fee. If you select a shorter two-year fixed rate the rate will be lower than a five-year deal.
The two-year fixed rate would allow you to take advantage of changes in the market and your circumstances in a shorter time but you may have to pay another arrangement fee. There is also a risk that interest rates may be higher in two years.
Fixed rate mortgages could fall further as they are sensitive to the wholesale interest swap rates which have reduced in January due to the expectation of low interest rates for a longer period of time.
Tracker mortgages are set as a percentage point above the base rate and are sensitive to the LIBOR rate which has been low since the financial crisis. The HSBC offers a lifetime tracker of 1.99% and arrangement fee of £999 if you have a 25% deposit.
In today’s uncertain global economy most people feel more comfortable knowing where they are with a fixed rate mortgage rather than tracker.
Other mortgages you can consider
Although long standing homeowners such as home movers and remortgage buyers may have a 40% deposit for the best rates, the majority of first time buyers do not.
There are other attractive rates with smaller deposits and shorter terms to help homeowners buy their property. In most cases the lenders will also allow you to add the arrangement fee to the mortgage.
With a 25% deposit the Chelsea building Society offers a two-year fixed rate at 1.34% with a arrangement fee of £1,675. If you have a 15% deposit you can consider the Yorkshire Building Society offering a two-year fixed rate of 1.84% and fee of £975.
For a longer term of five-years and a 25% deposit First Direct offers a fixed rate of 2.48% with an arrangement fee of £1,450.
If you have a smaller deposit of 10% the HSBC has a fixed rate mortgage of 2.19% and fee of £1,495. Virgin Money have a lower fee of £995 and a two-year fixed rate of 3.29%.
There are also more mortgage products for 95% loan to value (LTV) with only a 5% deposit available to buy their homes especially if this is linked to the government’s Help to Buy scheme for first time buyers and home movers.
For example, Barclays offers a two-year fixed rate mortgage for 3.79% with no arrangement fee and Santander offering the same but for 4.29%, no arrangement fee and £250 cash back.
What are your next steps?
Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.
For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to improve your quality of life or even help your children start or expand a business.
Learn more by using the equity release calculator, mortgage monthly cost calculators, and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
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