HSBCThe mortgage war which has broken out in recent weeks has been stepped up further as a bank launched its lowest ever two-year fixed rate.

Borrowers need a hefty 40% deposit to take out HSBC's 1.99% market-leading deal and will need to stump up a £1,999 fee, or £1,499 for HSBC current account holders.


Mortgage lenders have been slashing their rates following the introduction of a multibillion-pound Government scheme in August to boost borrowing by giving lenders access to cheap finance. The number of mortgages on the market has increased by nearly a fifth since the scheme started.

HSBC is not part of the Funding for Lending scheme and said that, as with its mortgages generally, the deal is primarily funded by retail deposits.

Peter Dockar, HSBC head of mortgages, said the bank is "committed to offering competitive rates" to customers.

Much of the strongest competition among mortgage lenders has been aimed at people with bigger deposits, although there have been some notable exceptions, such as a fee-free deal at 3.99% being offered by the Co-op Bank for people with a 10% deposit.

Borrowers also face higher hurdles to jump in taking out a mortgage as lenders generally have tightened their borrowing criteria amid the difficult economy.

Rachel Springall, spokeswoman for comparison website Moneyfacts, said similar deals to that being offered by HSBC have recently appeared on the market and have been withdrawn within weeks.

She said: "It's great to see a mortgage deal that breaks the 2% barrier. However, applicants do need to take into consideration application fees and other costs and not just the mortgage rate.

"Tesco Bank pulled their direct 1.99% two-year fixed deal at 60% loan-to-value after just one month, with a £995 fee, showing market-leading rates don't stay around for long."