Brokers predict surge of sub-2% five-year fixes in wake of HSBC move

Brokers expect to see more lenders launching sub-2 per cent five-year fixed rates in a frantic attempt to hit their lending targets.

Earlier this week, HSBC launched the market’s lowest five-year fixed rate, at 1.99 per cent. It is available to 60 per cent LTV and has a £1,495 fee.

Uncertainty about the general election has been blamed for a tail-off in lending, meaning most lenders are likely to be behind on their targets this year. Figures published last week by the Council of Mortgage Lenders showed year-on-year house purchase and remortgage lending were down 12.8 per cent and 11 per cent respectively in February.

Brokers feel lenders may take the opportunity to cut rates even further to entice borrowers, especially since swap rates have fallen slightly after a spike earlier this year. Five-year swaps hit a recent high of 1.62 per cent at the start of March but had fallen to 1.35 per cent at 17 April.

Coreco director Andrew Montlake says: “It is possible [we will see more lenders launch sub-2 per cent five-year fixed rates] as swap rates have fallen a bit and inflation is at zero.

“I think we are close to the point where further reductions would not be cost-effective any more but, saying that, lenders look like they will not hit their targets for the year, so we might see it.

“But the problem is they are all trying to get the same pool of borrowers and low rates will not be enough for them to hit their targets. They really need to concentrate on criteria, help mortgage prisoners and lend to older borrowers to hit their targets.”

Neil Soundy Financial Services managing director Neil Soundy says: “A 1.99 per cent five-year fix is ridiculously cheap. If HSBC can launch a rate like this, you will get other lenders coming in to match it.”