Mortgages are set to get cheaper

First the good news for home buyers: mortgages are getting cheaper. Earlier this month HSBC launched a new five-year, fixed-rate mortgage at 2.99 per cent, as well as a seven-year fix at 3.99 per cent and new tracker and discount mortgages.

The bank claimed its first deal was the lowest-ever five-year fixed rate. Now the bad news. The fix comes with an expensive arrangement fee — £1,499 — and is only available to those who can raise a deposit of at least 40 per cent.

HSBC is offering its two-year fixed-rate deal at 3.84 per cent to those with just a 10 per cent deposit with no fee. There are downsides: the hoops that potential borrowers have to jump through are tougher than some of its rivals.

Andrew Montlake, director at mortgage brokers Coreco, warned: “Reports from our clients say that service is slow. We have rescued two clients this week alone who were exasperated with the length of time the process took.”

Worse, HSBC’s arrangement fee isn’t recoverable if a house deal falls through. Still, its cheaper offering reflects a growing body of thought that the Bank of England base rate will remain at its current record-low rate of 0.5 per cent for much longer than initially expected - perhaps beyond 2015. And rates could fall from other lenders as a result of HSBC’s move.

Michael Ossei, of mortgage comparison site uSwitch.com, says: “Hopefully this move will kick-off the battle to win new customers, which could see further lower rate mortgages be launched, giving those looking for security more choice.

"Increased competition in this part of the mortgage market could also lead to a further fall in the fees and rates for longer term fixed mortgages, meaning that those who want to budget and prepare themselves for an increase in rates won’t be too heavily penalised.”