Mortgage relief for stressed borrowers

HSBC has ridden to the rescue of homebuyers with a promise to match the interest rate they are currently paying on fixed deals for the next two years. The generous offer will even meet remortgaging costs in England and Wales.

Annoyingly, Scottish borrowers fare slightly worse. The bank is only contributing £400 to their legal fees, which tend to be higher north of the border.

Nevertheless, HSBC’s Rate Matcher remains an eye-catching deal. But borrowers must move quickly: they have only five weeks to apply, and the offer is restricted to borrowers coming off fixed rates before the end of June.

Up to a million hard-pressed borrowers could save thousands of pounds each by opting for a new Rate Matcher home loan, which will peg mortgage interest payments as low as 4.54% for the next two years.

This will provide relief for homeowners left facing interest rate hikes of up to three percentage points as a result of the credit crunch. With an HSBC loan their headache should be over.

But there are catches. Borrowers must have a 20% deposit to put down, they cannot go via a broker but must apply direct to a branch and they may have to pay a significant booking fee.

David Hollingworth, of mortgage brokers London & Country, said: “On the face of it, the deal looks very attractive, but there are limitations which customers must be aware of.”

Ray Boulger, of Charcol, added: “We expect interest rates to fall over coming months, so borrowers must decide whether they think this is the best point to fix their rate or whether they might do better with a tracker. Then they should get a quote from HSBC and compare it with what they might be able to get elsewhere.”

But given the acute difficulties many borrowers have found getting any affordable remortgage finance, most homebuyers will simply wish to know how they can apply for this deal as quickly as possible and how they can improve their chances of being accepted. We answer your questions.

How do I qualify?

You must be able to put down 20% of the value of the property to qualify. Your mortgage must also come up for renewal by the end of June.

You must also pay a sizeable booking fee, calculated according to each individual borrower’s circumstances, based on the size of the loan and the rate at which their mortgage is currently fixed. The bank claims 72% of customers will pay £999 or less, and 57% no more than £599.

Tomorrow HSBC will launch its fee calculator on its website at www.hsbc.co.uk. You can then tap in your requirements and will be given an indication of the fee.

According to HSBC, a borrower with a £100,000 loan currently paying 4.54% faces a £1,699 fee. Elsewhere a £120,000 borrower paying 4.94% will pay £999. Including the fee this works out at an equivalent interest rate of 5.35% to 5.4%. The highest fee of £4,099 will be charged to someone borrowing the maximum of £250,000 with a 4.54% rate.

HSBC is using the fee to subsidise the interest rate, but according to the examples made available so far, it seems Rate Matcher effectively fixes the cost of most loans at around 5.35% to 5.4% for two years when the fee is also included into the equation. This is a good deal in the current market.

A word of warning: although the highest fee will be £4,099, the bank has reserved the right to increase the maximum upfront fee to £5,000 if something untoward occurs such as a sharp and unexpected surge in underlying borrowing costs.

Hollingworth warned: “This fee business is all a little woolly. It will be easier to assess the value of this deal once we have more information.”

How do I apply?

The loan becomes available tomorrow. There have been suggestions that existing HSBC customers are being given priority and new customers must wait another week. However, the bank denies this and says its doors are open to all from tomorrow.

If you are interested, first thing tomorrow use the internet to check what the offer will cost you, then get down to your nearest HSBC branch as soon as possible. Applications can be made via the telephone, but customers are being advised that visiting branches will be quicker.

You must pay the fee upfront. If HSBC rejects your application then you get this fee back. If you change your mind when you see the full details or if better offers emerge and you withdraw, then you forfeit the fee. As there could be a significant sum of money at risk, you should bear this in mind when applying.

Can I apply for August?

No. This is only for mortgages maturing before June 30. However, keep your fingers crossed. HSBC says it will review the offer in light of the response and consider a similar deal later in the year. No promises, though.

If you are desperate, consider opening an HSBC bank account. Although this new deal is available to non-customers, existing HSBC account holders have enjoyed a similar Rate Matcher offer since February, but with more options. They can refix over two, three or five years at their current rate and can borrow up to 90% of the value of their property.

Is there a borrowing limit?

Yes: £250,000. However, if your loan is bigger, you can peg the first tranche using Rate Matcher and then top up with another HSBC mortgage offer.

Are lower rates excluded?

No. If you are among a sizeable group shortly to come off five-year mortgages which were priced below 4.5%, you can still qualify for Rate Matcher, but the lowest interest rate you will be offered is 4.54%.

Are there remortgaging costs?

You usually have to pay survey and legal fees to switch to another lender. HSBC is paying £400 towards these costs to Scottish borrowers. However, it is meeting all remortgage costs in England and Wales.

How many loans are available?

The bank claims it has no funding issue, and in theory could make limitless funds available.

Its bigger concern is coping with the flood of applications anticipated. However, it believes it is managing the flow by limiting applications via branches and excluding brokers from the offer.