Would you gamble on the 0.99% mortgage? HSBC launches lowest ever two-year tracker… but it will rise if interest rates do

HSBC pulled its record low 0.99 per cent two-year fixed rate deal from the market last year

HSBC launched the UK’s lowest ever new tracker rate mortgage at just 0.99 per cent, as it fired the latest salvo in the battle to tempt homeowners.

The tracker is set at the Bank of England base rate plus 0.74 per cent for two years, but borrowers must remember that if interest rates rise then so will their monthly payments.

The HSBC mortgage comes with a £999 fee and goes head-to-head with the other 0.99 per cent mortgage on the market, from Yorkshire Building Society, except that is a two-year fix with a £1,495 fee.

HSBC’s 0.99 per cent tracker is available to home buyers and those looking to remortgage with a 35 per cent deposit or equity in their home, while HSBC premier customers get £250 lopped off the fee when they apply.

The Bank of England base rate was cut to an all-time low of 0.25 per cent in August last year and until recently was widely expected not to rise this year.

However, while the most recent Monetary Policy Committee meeting kept rates on hold at 0.25 per cent, the result of vote was not the shoo-in that was expected.

A single vote to raise the Bank Rate was forecast from Kristin Forbes, but instead not one but three members of the eight-strong committee voted to raise base rate from 0.25 per cent to 0.5 per cent.

This and comments from Bank chief economist Andy Haldane led to suggestions rates may move up sooner that people previously expected.

The return of a sub-1 per cent rate from HSBC comes seven months after the bank pulled its record low 0.99 per cent two-year fixed rate deal from the market.

The lowest rate on the market is a discount rate deal available from Yorkshire Building Society, currently on offer at 0.89 per cent for two years up to 65 per cent loan-to-value with a £1,730 fee.

Both deals involve an element of risk however, as they are variable rates and could change.

HSBC’s tracker reverts to the lender’s standard variable rate at the end of two years – currently this is 3.69 per cent – but the terms of the bank’s tracker deals mean any rise in the base rate will immediately pass to the borrower, meaning your monthly payments could go up.

Yorkshire’s discount rate meanwhile tracks the building society’s standard variable rate, which is currently 4.74 per cent. This is set at Yorkshire’s discretion and is likely to change if the base rate changes. It could also change even if the Bank leaves the base rate on hold.

This uncertainty is the reason that many borrowers opt for a fixed rate mortgage, which guarantees that monthly payments stay static for the term of the deal – usually two years, five years or in some cases longer.