In an astonishing development in the UK mortgage industry it was today revealed that HSBC will cut its mortgage rate to 0.99% creating the cheapest ever mortgage in the UK. This move has caught many experts by surprise and is something which was inconceivable just a few weeks ago with the Bank of England suggesting that UK-based rates were on the verge of rising from the current level of 0.5%. While an update on the UK economy this week suggested the recovery was slowing down, and indicated base rates would remain at 0.5% for the foreseeable future, why is there so much competition in the UK mortgage market?
Headline grabbing bargains
We wait to see further details of the HSBC 0.99% mortgage offer because very often the devil is in the detail. However, at this moment in time this does seem to be a straightforward reduction in the company’s core mortgage rate with many UK mortgage holders now looking to switch to this ultralow rate. We can fully expect a mass of other similar offers from Britain’s leading UK mortgage providers who perhaps see this as a short-term way in which to grab the headlines and grab new customers going forward.
There is no way that a rate of 0.99% can be maintained in the medium-term but if the UK mortgage leaders need to take a loss in the short-term while increasing rates in the medium to long-term this could be an interesting business strategy.
Quote from PropertyForum.com: “Should I remortgage my property?”
Savings for UK mortgage holders
Those looking to switch to the HSBC 0.99% mortgage deal could save around £3500 per annum on a £150,000 mortgage with even greater savings for those with larger mortgages. At a time when austerity seems to be the buzzword in the political arena, the cost of living rising quicker than the core inflation rate, householders would be foolish not to take advantage of this new streak of competition in the mortgage industry.
When looking towards headline grabbing deals you also need to take account of the fees associated with switching and indeed applying for a new mortgage. In some cases these will reduce the benefits in the short to medium term but with experts predicting five year fixed rates will fall below 2% in the short-term there are a number of opportunities to rebase and reduce your mortgage payments going forward.
Will this reignite the UK property market?
The Bank of England will be disappointed to learn that competition in the UK mortgage arena is returning and that a rate of 0.99% has already been announced. At a time when the authorities are trying to control the UK property market, having attempted to talk it down for many months, this injection of cheap capital will not make this task any easier. There is every chance that cheaper mortgage funding could reduce rental income expectations in the short-term and could squeeze prices even higher in the foreseeable future.
At a time when the UK real estate market is potentially on the verge of “overheating” this injection of cheap mortgage capital must be a nightmare for the Bank of England. In what is effectively a double whammy, the Bank of England confirmed that base rates would remain at 0.5% for the foreseeable future prompting the introduction of this 0.99% mortgage offer by HSBC. Who would be a banker within the Bank of England!