HSBC's new 90% mortgage under 4%

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HSBC today launches its first ever sub-4% interest rate for mortgage borrowers with a 10% deposit – a 3.84% two-year discount deal with no fee to pay. The bank says anyone can apply.

How good is this offer, and will others follow suit?

As the mortgage market gradually returns to normal, more 90% deals have become available, but this is the cheapest from a major lender.

Peter Dockar, head of mortgages at HSBC, said: "We are committed to supporting first time buyers and last month we pledged to make a further £350 million available to borrowers with equity or a deposit of 10-15% by the end of the year. We recognise that first time buyers need help so as well as great rates with no fee options. We offer our customers a free mortgage advice service in branch to help them get the right deal for them."

Another deal below 4% interest was launched yesterday by mortgage broker Share to Buy through Britannia Building Society - a 3.99% mortgage with a 10% deposit. It also comes without fees, but the deal is only for graduates and people with professional qualifications, e.g. nurses, doctors etc (while anyone can apply for the HSBC deal).

On the other hand, the Share to Buy/Britannia mortgage has no early repayment charges, while HSBC charges ERCs of 2% on its deal, which gradually reduces to 1% by the end of year one and zero by the end of year two.

James Cartlidge of Share to Buy said: "There is no doubt that this rate from HSBC is very competitive for a 10% deposit. However, customers should be aware that they would be tied in to a variable rate and would have to ask themselves what happened if rates went up more than expected. We have a similarly competitive 10% product with a rate of 3.99% and no fees but customers are never tied in and therefore if rates go up they would be free to switch to any other product or lender. Overall, there is now far more choice at 90% than there has been for many months."

These two deals look to be the most competitive at the moment. Yorkshire Building Society has a 3.99% variable deal (Bank of England base rate + 3.49%) with a 10% deposit, but charges a £995 fee plus hefty early repayment charges.

"There are very few deals available at 90% with no fee," said Ray Boulger of mortgage broker John Charcol. He reckons the HSBC deal is "very good if you qualify. At 90% all the banks are very strict, but HSBC are stricter than most." You have to have a squeaky clean credit score. "Missing a couple of credit card payments could be enough to disqualify you for the mortgage. In that context HSBC are very strict."

He thought that the early repayment charges weren't really an issue, as most people going for the deal "wouldn't be in a position to refinance early anyway".

Will other lenders follow suit? Cartlidge said: "Generally, when HSBC go very low at 90% not many follow because they have so much power. But it may mean others won't be putting up rates as much as they would have done."

Also aimed at first-time buyers, John Charcol launched two 95% LTV mortgages from the Newbury and Saffron building societies in July. The Newbury deal is a family offset mortgage for three or five years. One or two family members of the first-time buyer have to make a savings deposit of 20% of the purchase price with Newbury, reducing the net loan to 75%.

It is restricted to a maximum loan of £300,000, has no arrangement fee and an early repayment charge of 1% for the deal term. The Saffron mortgage is a four-year fixed rate at 5.79%, with a £195 arrangement fee. The ERC is 2% for the fixed rate term, with overpayments of 10% a year allowed. The maximum loan is £500,000.

For those with a larger (40%) deposit., HSBC launches these deals today:
- 2.39% lifetime tracker - current pay rate 2.89% (£999 booking fee. Valuation fee and completion fee payable)
- 3.28% five-year-fixed (£1,999 booking fee. Valuation fee and completion fee payable).

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