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‘HSBC launch 1.9% mortgage deal’

September 25, 2009 at 1:18 pm

Mortgage rates have been going up slowly recently, but there are now signs of a looming price war on the way. First Cheltenham & Gloucester and Woolwich lowered their mortgage rates, and now HSBC is getting in on the act with a new 1.99% mortgage deal.

Initially it looks very attractive, but experts have warned homebuyers not to expect a proper price-war just yet as the deal comes with quite a few catches.

Although the starting rate of 1.99% means it is the cheapest available mortgage on the market at the moment, the significant drawback is that you need to come up with a massive 40% deposit to take advantage of it. On top of that, there is an arrangement fee of £1,199.

And if you pay a deposit of just 25% of the property value, the interest rate goes up to 2.49%.

This is a discount mortgage, meaning that the rate changes in line with the SVR (Standard Variable Rate). At the moment this is 3.94%, but this usually alters in line with changes made by the Bank of England. Predictions in the market suggest the Bank of England will not increase interest rates until 2010, meaning it could be a great time to take advantage of the cheap deal if you are able to.

However, as you never know when rates are going to change, it is usually a safer bet to go with a fixed-rate mortgage.

The mini price war comes after campaigners recently expressed their fury that the savings in wholesale funding costs being made by the banks had not been passed on to customers. The banks are finally starting to drop their rates in response, but hopefully this is just the beginning.

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