At the current moment HSBC is proposing mortgages with interest rate 1.29% fixed for 5 years for 75% LTV:


I wonder what is the reason for HSBC for proposing such low rates, are they really making profit this way (taking into account inflation)?

I am asking the question because I wonder if there are some hidden risks for those who take such a (5 year fixed) mortgage?

1 Answer 1


The five-year gilt yield is currently 0.30%, and HSBC is paying 0.20% interest on fixed-term savings accounts (and 0.01% on many of its other savings accounts). Mortgage lending is pretty low-risk, and they can certainly make money on the spread between 1.3% and 0.3% or 0.2%. They don’t have to worry about inflation, because what they lose on the money they lend out they gain on their deposits.

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    Also there is a £999 fee for the 1.29% option, so it's not a 'real' rate; the rate without the fee is 1.69%.
    – richardb
    Jul 10, 2021 at 12:24
  • "... what they lose on the money they lend out they gain on their deposits" — Could you explain how that works?
    – Flux
    Jul 10, 2021 at 12:52
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    If you have £1 million, and inflation is 3%, then you have lost £30,000 of value in a year. But if you’ve lent out £1 million and you have £1 million in deposits then you have no skin in the game — your debtors will benefit from inflation, but it’s your creditors who suffer the corresponding loss, not you.
    – Mike Scott
    Jul 10, 2021 at 13:07
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    @aglearner You will be better off paying the fee and taking the lower rate in most cases, yes.
    – richardb
    Jul 10, 2021 at 14:58
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    Lenders make money by the lending multiplier effect, not on the spread. Depending on the jurisdiction, the multiplier factor can range from a low of 1 to a high of 35. So for every dollar the lender takes in, he or she may be able to loan up to 35 dollars. And now you know why we had a loan bubble that burst in 2008 and another one today since regulations have been relaxed, particularly in the US. Jul 10, 2021 at 21:56

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