One of the UK’s leading mortgage lenders has launched a market leading first time buyer product which could spark a price war in the mortgage market. HSBC’s new seven year fixed rate – available to borrowers who have just a 10 per cent deposit – substantially undercuts other main lenders and is great news if you’re looking to get onto the property ladder. However, critics have expressed concern that ultra-strict underwriting, and the penalties associated with a seven year rate, may mean that few first time buyers actually benefit from this deal.
Great mortgage deal – if you can get it
HSBC’s new deal is a seven year fixed rate at 4.89 per cent. It is available to 90 per cent borrowing and, as an additional incentive, does not come with a sizeable arrangement fee.
Keith Osborne from leading new homes website WhatHouse.co.uk said: “On paper, this is a stunning deal that significantly undercuts many of HSBC’s main rivals. Offering a rate under 5 per cent and the ability to borrow 90 per cent of the purchase price makes this an extremely appealing deal to first time buyers.”
While the deal is certainly a market leader, many mortgage experts are concerned that it will have little effect on first time buyer activities. Even though the deal is available to 90 per cent borrowing, this still means that first time buyers have to save up a sizeable deposit. The Guardian reports that ‘according to the Office for National Statistics, the average price a first-time buyer pays for a property is now £173,000. So, even a 10% deposit equates to £17,300.’
In addition, there are plenty of reasons to be cautious about committing to a seven year fixed rate product. Mortgage expert, James Cotton, told the Guardian: "It is a pretty long period. When people buy their first property they are not usually buying somewhere they anticipate being in for the long term – they may be single, don't have a family, and may be stretching just to buy a flat. To say you will stick to that property for that period may be too much."
In addition, the early repayment charges for coming out of this seven year deal are significant. Mr Osborne adds: “HSBC charge a percentage of the loan if you repay your mortgage during the fixed rate period. While this percentage decreases every year, you could still end up paying almost £6,000 to get out of the deal after three years.”
However, the biggest problem that first-time buyers face is the ultra-strict lending criteria imposed by most banks and building societies. Just three months ago, the Guardian reported on how one couple who applied for an HSBC mortgage were grilled for four hours by the bank, during which every aspect of their spending habits was put under scrutiny.
Mr Osborne added: “HSBC insists that it accepts four out of five applicants, but many first time buyers eligible for this deal could still end up being refused for petty or minor reasons.”