HSBC have announced this week their lowest priced mortgage product ever, amid the beginning of a rate war amongst mortgage giants.
The product, a discounted rate from HSBC’s Standard Variable Rate (SVR), is the first time that the lender has offered a sub-1% mortgage product, and is a market leader for those with a minimum 40% deposit.
A rate war is predicted amongst the bigger mortgage lenders in the UK, as the property market has reached what some industry experts describe as a ‘plateau’.
“Recent indicators and policy actions corroborate our view of a gentle easing in market conditions. There is growing evidence that mortgage lending activity, and the housing market, are sitting on a plateau” said Bob Pannell, Chief Economist for the Council of Mortgage Lenders (CML).
In response to this, several big-name lenders are preparing to slash mortgage rates, as swap rates remain low.
“We’ve seen in the past week the introduction to us of Halifax’s sub-3% exclusive fixed rate for borrowers with a 10% deposit; that may well be followed by other notable lenders dropping their fixed rates; Barclays for example are preparing to launch several inviting longer term fixed rates” said Simon Butler, senior consultant at specialist broker Contractor Mortgages Made Easy.
The reason for fixed rates remaining low – and even falling – lies behind the little-known banking measure of ‘Swap Rates’, which are not directly linked to the Bank of England Base Rate.
“Swap Rates are essentially the rate at which banks borrow money. In real terms, it’s the cost to them of funding your mortgage. When Swap Rates are low, banks can be more generous with mortgage rates, and when Swap Rates increase, so do fixed mortgage rates” says Taj Kang, Operations Director at Contractor Mortgages Made Easy.
“These Swap Rates have been steadily falling recently, which has lead in part to the reduction in interest rates offered by the big hitters in the mortgage market. That is only part of the story, however, as there are also business targets influencing the market.”
“As lenders come to the last quarter of the year, they have a pretty good idea of where they have hit their lending targets, and where they could do better. The last quarter represents a real opportunity for them to hit any targets that might seem a little high at present, hence the attractive rates.”
This combination of factors adds up to a welcome change in approach toward Contractors, explains Simon Butler.
“For a long time, those Contractors with a good-sized deposit have been limited to a small selection of lenders in order to verify their contract income, and as such have been somewhat harshly dealt with when it comes to leading mortgage rates.”
“No longer however, as more and more banks wake up to the earning potential of Contractors and start to work with us on proving income correctly. Taking current mortgage offerings into account, this is the best time in recent memory to be a prospective borrower.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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