With customers scrambling for the 1.99% discounted standard variable rate mortgages from HSBC and other low rate mortgages such as the Halifax 2.99% fixed rate mortgage coming onto the market, are these deals as good as they seem?
A 1.99% discounted variable mortgage sounds fantastic, even in these low interest rate times. I personally think the Halifax 2.99% per cent fixed rate mortgage sounds even better.
These headline rates really do catch the eye and tug at the purse strings, but customers looking for such good mortgages need to tread with caution.
For a start, a deposit of at least 40% is required. That is a tough requirement for most home buyers.
Although HSBC claim that 50% of UK mortgage borrowers can meet these stringent requirements, this is at odds with the view of MoneySupermarket.com.
According to MoneySupermarket.com’s Hannah-Mercedes Skenfield “The vast majority of the market is unable to access these deals as nearly all new headline rate launches are restricted to a minimum of 60 per cent LTV. MoneySupermarket.com figures show that only 33 per cent of potential borrowers have this kind of deposit.”
Beware the arrangement fees
Finding that hefty deposit is one thing, but then the borrower needs to look carefully at the mortgage arrangement fees.
That very attractive 2.99% fixed rate mortgage at the Halifax now looks slightly tarnished when you know that they charge a 2.5% arrangement fee.
So if you borrow £150,000, you will have to pay a £4,500 arrangement fee and remember the mortgage is only fixed for two years.
Interest rates will have to go up very substantially in the next two years for you to recoup that cost.
The 1.99% HSBC mortgage comes with a £1,199 arrangement fee, which sounds more reasonable until you remember that this mortgage rate will increase as the banks standard variable rate rises.
In other words, you are paying £1,199 to arrange a mortgage that will probably increase from the attention grabbing 1.99% rate during its two year term
So if these headline grabbing mortgage rates sounds attractive, then it will really pay you to get out the calculator and ensure that they are actually as good as they sound.