HSBC pulls cheapest deal to signal end of record low mortgage rates
HSBC has pulled its 0.99% two-year fixed-rate deal - a product that has been at the top of the 'best buys' since it was launched in June. Experts believe that other lenders are set to follow suit as the era of rock-bottom rates could be set to end.
Over recent months lenders have been reducing their rates thanks partly to a Bank of England base rate cut and also in order to gain market share. Now, with bank funding costs starting to rise, experts believe that rates will begin to creep up from their record lows.
Many economists believe the policies of new US President Donald Trump could see interest rates rise, pushing up the cost of mortgages. Swap rates, which banks use to guide the pricing of their fixed rate mortgages, have been rising in recent weeks and this increased cost means many lenders are under pressure to increase the cost of their deals.
Tracie Pearce, head of mortgages at HSBC, said: "Over the past four weeks, we have seen the cost of funding increase, especially for two- and five-year mortgages."
In the last few weeks, there have been conflicting signs in the mortgage market. Some major lenders have increased the cost of their products while others have released even cheaper deals. However, experts say that HSBC's strength in the market could make it harder for small lenders to keep their rates at their current level.
Mortgage expert Ray Boulger told the Financial Times: "It's likely to be not very long before others follow [in raising rates]," adding that tracker rates were also set to follow suit.
Possible rate rises could see borrowers rush to fix
The changes made by HSBC are significant. Its lowest two year fixed-rate deal has risen by 0.3% to 1.29%, with a fee of £999. Lenders typically raise the cost of their deals by between 0.15% and 0.2%.
Charlotte Nelson from financial analysts Moneyfacts says: "We all knew these deals wouldn't last forever but, with market uncertainty and rising swap rates, it is increasingly difficult for providers to offer some of the lower deals in the market."
The FT reports that the lowest two-year fixed rate is now a First Direct deal at 1.09%. It has a £1,450 fee and is available to a maximum of 60% loan-to-value. Virgin Money offers the best five-year fixed rate, at 1.83%. Available to a maximum of 65% loan to value, this has a £995 fee.
Mortgage expert David Hollingworth believes that the repricing of HSBC deals and the possible knock-on effect could see borrowers rush to snap up a fixed rate. "It may signal that those borrowers that have hung on, hoping to see rates fall even further, need to think about taking action," he said.