HSBC unveils innovative Split Loan Mortgage Part fixed-rate, part tracker mortgages on offer

24 April 2010

mortgage papers

Variable rate mortgages can leave you vulnerable to increases in the Bank of England base rate

HSBC is to launch an innovative new Split Loan Mortgage on Monday 26 April; a product that will allow borrowers to fix a proportion of their mortgage while leaving the remainder at a variable rate of interest.

Customers will be able to fix 25%, 50% or 75% of their home loan, leaving the rest of their mortgage to track the Bank of England base rate for the lifetime of the deal.

HSBC says the loan is designed to appeal to borrowers who face the dilemma of whether to stay with a variable rate mortgage, which perhaps affords them the opportunity to overpay, or opt for the security of a fixed-rate mortgage.

Mortgage interest rates

The actual interest rate customers pay on the Split Loan Mortgage will depend on how much of their mortgage is fixed and the loan-to-value ratio (LTV) of the deal.

Initially, both the fixed and tracker portions of a Split Loan Mortgage will carry the same interest rate. However, the proportion of the mortgage that is tracking the base rate is likely to fluctuate in cost.

The rates on offer from HSBC compare favourably with many on the market. A two-year mortgage at an LTV of 70%, and with a fixed component of 25%, is set to cost 2.49%. Meanwhile, a customer looking to fix 75% of their mortgage for two years, again at an LTV of 70%, would pay an initial rate of 2.99%.

Fixed-rate mortgages

Which? property and mortgages expert Cathy Neal commented: ‘While the rates on offer from HSBC are competitive, it’s worth remembering that the Bank of England base rate is likely to go in just one direction over the next two years: up!

‘This means that the Split Loan Mortgage may well become more costly over time, particularly if a large proportion of your deal is at a variable rate of interest.

‘If you want the security of knowing exactly what your monthly mortgage payments will be, a 100% fixed-rate mortgage is still the best option – and if you have a 30% deposit to put down on your property, you could currently find a rate as low as 2.99%.’

Mortgage fees

The HSBC Split Loan Mortgage comes with a booking fee of £999, and the bank will allow customers to secure the deal by paying this fee over the next few weeks – even if they do not intend to draw down funds for up to six months. 'This could be a benefit to anyone concerned that the cost of fixed-rate mortgages may increase before they need a new deal,' said Ms Neal.

The Split Loan Mortgage allows customers to pay off the entire tracker portion of their loan at any time, with no early repayment charges (ERCs). Overpayments of up to 20% of the monthly payments charged on the fixed portion are also penalty-free.

However, any further over-payments would attract ERCs, which would be calculated on a sliding scale depending on how much of the mortgage was repaid in advance. 

Find the best mortgage for you

Before committing to any mortgage deal, why not take a look at the Which? mortgage calculator? It takes the hassle out of comparing mortgage deals by taking account of rates, fees and charges to help you look at the total cost of the home loan you’re considering.

For more information on the different types of mortgages on the market, read our Mortgage deals explained and Mortgage basics advice guides.

pound coins

Which? Money when you need it

You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.

Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.

Or for money-saving tips, and news of how what's going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast

For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.