HSBC cuts mortgage rate

HSBC will wade into the mortgage war this morning, cutting its borrowing rate by almost one percentage point as it becomes one of the first big banks to offer a home loan that meets new government requirements.

Its government-approved charges access and terms (Cat) mortgage is starting as HSBC introduces a series of "better banking" initiatives. Last week it launched a stakeholder pension and later this week is expected to confirm that all charges for cash machine withdrawals are to be axed.

The moves are made against a backdrop of government concern about the financial services industry, prompted by Don Cruickshank's investigation into competition in the sector.

The mortgage cut will propel HSBC to the top of the "best buy" table of the 10 biggest lenders. The nearest to HSBC's 6.75% standard variable rate is Nationwide building society with 7.74%.

The bank has promised not to allow the standard variable rate to exceed the the Bank of England base rate by more than one point. Customers who borrow more than 90% of the value of their property will pay an extra 0.15 of a point over the standard rate for the first three years.

John Massey, head of mortgages at HSBC, insisted that the move was not just about winning new business because the bank will transfer existing customers to the better rates and terms.

He admitted it was easier for HSBC to make such a move because of its small number of mortgage customers, 300,000, compared with the millions on rivals' books. Also, more than 50% of its home loans are fixed-rate products.