Cautious welcome for HSBC’s seven-year mortgage package

HSBC’s bid to entice buyers onto long-term home loans comes after a summer rate war that saw lenders accused of freezing out first-time buyers by targeting only those with at least 40 per cent in equity or deposits.

It also arrives in the slipstream of the Bank of England’s funding for lending scheme, which cut borrowing costs for lenders in an effort to breathe new life into the mortgage market.

Experts have welcomed HSBC’s move, but warned that with lending criteria still tight, many applicants for the loan can expect to be turned away.

The new seven-year mortgage for buyers with a 10 per cent deposit comes with a rate of 4.89 per cent, the cheapest on record. It will be available from Monday.

Alongside this, the bank is also launching 4.89 per cent mortgages over two, three and five years for those with 10 per cent to put down, as well as 4.49 per cent fee-free lifetime tracker deal.

Peter Dockar, head of mortgages at HSBC, said: “We have consistently offered competitive rates on our mortgages and these latest products offer first-time buyers the helping hand they need to get onto the property ladder with a market-leading rate and no upfront fees.”

Michael Maloco, of Maloco & Associates in Dunfermline, welcomed HSBC’s move. However, he said: “It’s certainly good news – at least on the surface. As ever, the devil will be in the detail, in particular the application of lending criteria. Too often over these last years have we seen headline-grabbing rates and deals which in reality are available only to those and such as those due to the application of very restrictive parameters.”

First-time buyers in particular have suffered in recent years as lenders have tightened their mortgage criteria, as Maloco pointed out. That typically means that without a squeaky clean credit history, those applying for the best first-time buyer loans face rejection.

Lorraine O’Shea, director at Edinburgh-based Honour Financial Planning, said that HSBC was among those with a reputation for “cherrypicking” borrowers.

And she said that while the seven-year rate is attractive, it comes with risks attached: “A borrower would need to weigh up the fact that their loan-to-value should in theory reduce over time. House prices might rise again, but they would be stuck at that rate even if they became eligible for a 75 per cent deal.”

HSBC, Royal Bank of Scotland and Santander have all launched five-year fixes with rates below 3 per cent in recent weeks, exploiting a desire among borrowers for peace of mind and protection from interest rate rises.

O’Shea said: “People are willing to take advantage of the fact that these [Bank of England] rates are at historic lows.”

And Maloco expects other lenders to follow HSBC’s lead, “albeit with their own nuanced deals and approaches”.

Meanwhile, Bank of Scotland has a new sweetener for home buyers. Anyone buying a new home and taking out a new mortgage through the bank between now and 22 October will qualify for £500 cash, to be paid through their conveyancer when the deal has been completed.

Sylvia Waycot at Moneyfacts applauded the move, but added: “Given the choice, I think most people would rather see higher LTVs combined with lower mortgage rates.”