HSBC puts two fingers up at the Chancellor

Posted on 27 June 2008 by Ray Boulger

2 Comments

HSBC have repriced upwards their Rate Matcher mortgage, i.e. the remortgage only product where they offer for a further 2, 3 or 5 years the same fixed rate borrowers have been paying, but with a variable fee, depending on the actual interest rate, the size of the mortgage and the new fixed rate term required.

They have increased the minimum pay rate by 0.25% to 4.79% and the maximum fee is doubled to £9,999, with a minimum of £599. Since the original deal was launched in February swap rates have risen significantly and so perhaps the only thing surprising about this increased pricing is that it didn’t happen sooner.

After Mr Darling's comments in an interview earlier this week, in which he demonstrated, by his comments about high arrangement fees, either his lack of knowledge of the mortgage market or his objection to lenders offering their customers choice, I doubt he will be checking what fee HSBC would charge him for a new deal when his current Northern Rock one finishes!

HSBC’s web site calculates the fee required in individual cases and it is clear that the true cost of the new deals is around 6.33%, factoring in the fee to the rate. If the fee HSBC would need to charge to offer the interest rate required would be more than £9.999 they will decline to offer this deal. In all the examples I tried the fee always ended in £99.

With an effective rate of around 6.33% the new deal is competitive. However, some people won't even consider such a high fee - a little over 3% for someone wanting the lowest rate available of 4.79% for 2 years - but others may prefer to pay a high fee to reduce their monthly payments and be confident they are affordable.

Although the website only calculates the fee for a 2 year fixed rate the deal is also available for 3 and 5 years and based on how it is calculated I would expect the fee for a 5 year fixed rate at 4.79% to be about 7.5%. Because the maximum fee is £9,999 the longer the fixed rate term required the smaller the maximum loan that will be available. For example a 5 year fixed rate of 4.79% would only be available up to a maximum loan size of about £130,000.

When the HSBC website calculator shows a fee above £5,000 a message comes up saying: “As your booking fee has exceeded £5,000 we recommend that you seek advice from one of our professional Mortgage Managers”. I don’t understand this. Why does HSBC only consider advice is important if the lender is charging a fee of more than £5,000?

Advice from a good independent or whole of market mortgage broker is just as important in this market as when there were more mortgages too choose from. There is still a lot of choice for many borrowers and apart from the fact that  borrowers often struggle to understand the trade off between rate and fees, let alone do the calculations, there are plenty of other factors that should be taken into account when choosing the right deal. The starting point is to decide whether to have a fixed or variable rate and for how long!

Category: Interest rates, Mortgages

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