April 10, 2008 | posted by Pam Atherton in Banking, Mortgages |

HSBC’s offer to match the fixed rate mortgages of households coming off fixed rate deals in the next five weeks looks too good to be true.

The bank says it will match rates as low as 4.54 per cent for a further two years, providing the borrower has 20 per cent equity in their home and does not want to borrow more than £250,000. The offer applies to individuals whose fixed rate loan is due to mature before 30 June 2008.

If you want to borrow more than £250,000, you can still use HSBC’s Rate Matcher facility and top it up with another HSBC mortgage to required amount.

The bank will charge borrowers a fee to match their old fixed rate, the size of which will depend on the interest rate and size of loan requested. HSBC says that 72 per cent of customers will pay a fee of £999 or less.

But in fact the arrangement fee could be as high as £4,999 if you want the maximum £250,000 at a very low rate, according to Katie Tucker of mortgage brokers, John Charcol.

Tucker says: “They have a profit model which calculates the arrangement fee according to the level of the interest rate. The lower the rate, the higher the fee. If you are going to apply, you need to ask yourself how much you are willing to pay in fees to hold your interest rate down at its current level.

“People need to understand that the fees are a subsidy for the interest rate. It would be best to get a quote from HSBC and then go to a whole of market broker to see if they can better it. Borrowers are getting fed up with having to pay  high arrangement fees every two or three years, so term trackers at a fixed margin over base rate may become more attractive.”

The bank is targeting some of the 1.4 m individuals who are due to come off cheap fixed rate deals this year, who would otherwise face a sharp rise in mortgage costs as lenders withdraw their most competitive offers for fear of being overwhelmed with new business.

HSBC says it can make this offer because it does not borrow from the wholesale markets to finance mortgages.  Non HSBC customers can apply from April 14.

Applications can be made at HSBC branches and over the phone, with the bank expecting three times its normal business. I expect it will get considerably more than that and will probably be inundated with enquireies.

 So don’t go near an HSBC  branch next Monday unless you really have to.