HSBC's record-low British mortgage rate sparks risky lending concerns

A man walks past the HSBC headquarters building in the Pudong financial district in Shanghai, on Dec 8, 2010.
A man walks past the HSBC headquarters building in the Pudong financial district in Shanghai, on Dec 8, 2010.PHOTO: REUTERS

LONDON (REUTERS) - HSBC has launched what is thought to be Britain's lowest-ever mortgage deal with an interest rate of less than 1 per cent, raising concerns of a return to riskier lending practices to try to boost flagging profits.

Europe's largest bank is offering customers the chance to borrow money at a fixed interest rate of 0.99 per cent for two years if they have saved a deposit of 35 per cent of the property's purchase price, the bank said on Tuesday.

Moneyfacts, a consumer website, said the HSBC product was the lowest offered since it began recording product rates.

Facing record-low interest rates and rivals keen to steal market share, leading players HSBC, Lloyds Banking Group , Barclays and Royal Bank of Scotland have all signalled aggressive lending ambitions in the search for profitability.

But signs of looser lending standards in the crowded markets for loans have revived memories of a similar hunt for income just before the 2007 financial crisis, which exposed widespread reckless lending at many banks.

"When I cast my mind back to the three property recessions I have worked through, this is the sort of thing I fear to see,"independent housing market analyst Henry Pryor told Reuters. "It was only a matter of time before lenders who are obviously competing with one another for business came up with ever more creative and exciting offerings ... These are palpitations the body feels before a heart attack," he said.

HSBC denied the product represented a return to riskier lending, saying customers needed a large deposit to be approved and that lending standards have tightened since the financial crisis.

Lucian Cook, UK head of residential research at property services firm Savills, said the product would have limited benefit for many aspiring homebuyers struggling to get on the property ladder in Britain's supply-constrained market.

"The 35 per cent deposit requirement ... risks widening the gap between those with and without housing equity. In any event, those accessing this deal will need to plan carefully to ensure they do not risk being overstretched at the end of the two year period."

Last month, Barclays began offering mortgage enabling buyers to borrow 100 percent of a property price with the help of a temporary deposit by a relative in a linked account, the first time a lender has done so since the financial crisis.

Halifax, part of the Lloyds stable, has increased its upper age limit for mortgage borrowers from 75 to 80, against a backdrop of record low rates.

Nationwide, Britain's biggest customer-owned lender, also raised its age limit for people paying off mortgages by 10 years to 85.