The Bank of England has kept the base interest rate set at a 0.5% for far longer than many economists were expecting. It was first brought down to this level in March 2009, and at that point few people could see it remaining so low for more than two years. Over three years on, a consensus is finally being reached that we could see the 0.5% rate stick around for much of the foreseeable future, certainly into 2015 and likely into 2017.
The fixed rate mortgages that banks offer appear, at last, to be taking this into account, and HSBC have just launched a new five-year fixed rate mortgage at 2.99%, the lowest rate ever for a five-year fixed term. This is an acknowledgement on their part that they do not believe the 0.5% interest rate will change in the next five years; their own base rate is currently 2% plus base rate, meaning a change of as little as 0.5% in the Bank of England rate will mean this fixed rate becomes less profitable for them.
However, it gives customers a big guarantee. They only need to pay a rate that’s 0.5% higher than the current HSBC base rate and they are guaranteed to be kept at that rate for five years. If there are any unexpected hiccups and the base rate jumps up just 0.5%, they’ll be saving money. If it goes up by 1% or even 2%, they’ll still get to stick with their 2.99%, a safeguard that is not to be sneered at.
With such a low fixed rate being offered on HSBC’s five-year mortgages, other banks are likely to begin offering similar products to remain competitive. There are some drawbacks to the HSBC mortgage, however; there’s a £1,499 upfront booking fee, and the 2.99% rate is only available on a deposit of 40% or more. Even though rates like this make good adverts for banks, it’s worth reading all fine print before you sign up.