HSBC latest to cut mortgage rates

British banking giant HSBC today became the latest mortgage lender to cut its rates following a drop in wholesale funding costs.

The group is reducing its two-year fixed rate mortgage by 0.31%, while longer term fixed rate loans are being cut by 0.16%.

The move, which comes into force from tomorrow, leaves the group’s standard two, three and five year fixed rate mortgages at 6.43% for people with at least a 10% deposit.

HSBC is also introducing a new five-year fixed rate loan with a rate of 5.98%, which will only be available to people who have its Plus or Premier current accounts.

The group is the latest in a line of lenders to cut its rates following a fall in swap rates, upon which the cost of fixed-rate deals are based.

Other major players, including Abbey, Halifax and Nationwide, have all recently reduced the interest charged on their mortgage deals, prompting speculation that the trend for lenders to hike their rates as a result of the problems caused by the credit crunch may have peaked.

Darren Cook, mortgage expert at Moneyfacts.co.uk, said: “There is a faint glimmer of hope that the fixed rate mortgage market is returning to some sort of normality.

“New mortgage borrowers are now finally benefiting from this, as lenders pass on a string of welcome interest rate cuts on their popular fixed rate deals.”

He said the average cost of a two-year fixed rate mortgage peaked at 7.08% on July 11, its highest in over a decade, after swap rates peaked at 6.52% on June 16.

However, following rate cuts by a number of lenders during the past two weeks, the cost of the average two-year fixed rate mortgage has dropped to 6.95%.

Mr Cook said: “It is encouraging that, at long last, lenders are responding to the easing in wholesale borrowing costs and passing a discount on to the consumer.

“There is a sense that competition is finally returning to the fixed rate mortgage market, which will benefit the borrower.”

He added that swap rates were continuing to fall, suggesting that lenders could make further reductions during the coming weeks.