The cheapest ever fixed rate mortgage

HSBC has launched the cheapest-ever fixed rate mortgage, with an interest rate of just 1.49% for two years.

However the rate comes with a hefty fee of £1,999 and you’ll need a deposit of 40% to get your hands on it.

Along with the 1.49% deal, HSBC is also launching a host of other mortgages.

In the two-year range, it’s bringing out a discounted mortgage at 1.69% with a £1,499 fee and also a lifetime tracker rate at base rate plus 1.6% (currently 2.19%) with a £1,999 fee.

For those borrowers looking to fix over a longer period, there is also a five-year fixed-rate mortgage at 2.59% with a £1,999 fee. If you want to pay less in fees there is also a five-year deal with a higher rate of 2.99% and a £99 fee.

These mortgages all require a 40% deposit, so won’t be an option for everyone.

Falling mortgage rates

Since the start of the government’s Funding for Lending Scheme (FLS) nearly a year ago, rates on mortgages have been steadily falling.

This has created a boost in the house buying market and allowed some new lenders to enter the scene, bringing more competitive deals to borrowers. It has been especially helpful for first-time buyers, leading to a huge increase in the number of mortgages available requiring a 5-10% deposit.

[Return of small deposit mortgages]

How does it compare?

Two-year fixed-rate deals

Within the two-year fixed-rate market the 1.49% deal is the cheapest deal on offer, but it won’t be suitable for everyone because it requires such a high deposit.

When looking at identical mortgages – at 60% LTV for two years – the Post Office has the next-best offer at 1.70% with a fee of £1,995.

Chelsea Building Society also has a relatively similar deal at 65% LTV which is fixed at 1.64% for two years and has a £1,545 fee.

In the 70% LTV range there’s a mortgage from Woolwich which has a higher rate of 2.69%, but comes with no fees.

Five-year fixed-rate deals

When comparing the longer five-year rate mortgages, Norwich and Peterborough Building Society has one of the best offers in this range at 2.59% for a 65% LTV with a fee of £295. It’s a lower fee than the HSBC offer, and you can get it with a smaller deposit.

First Direct is another contender at 2.89% for a 65% LTV mortgage with a fee of £499.

First-time buyers

The market for first-time buyers is doing well; this year the number of people buying their first house has risen 19% compared to the same period last year, according to Halifax.

When looking at the market there are some competitive deals around for those people who aren't able to save up 30% or 40%. Norwich and Peterborough Building Society, for example, has a two-year fixed rate 90% deal at 4.04%, with a £295 fee.

Typically longer mortgages will have lower rates. The market-leading offer for a 90% LTV mortgage comes from HSBC, but it’s fixed for five years. This one costs 3.59%, with a £1,499 fee.

The Post Office also makes an appearance here with a 90% LTV deal set at 3.99% with fees of £1,499.

Thanks to Moneyfacts for help with this article

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This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker before acting on anything contained in this article.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.