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First-time Buyer

Cashback mortgages soar in the past year

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
27/11/2017

The number of cashback mortgages available has risen by around 27% in the last six months while the average value grew by 11%, according to Moneyfacts.

In May there were 939 cashback deals on the market with an average value of £366 – almost identical figures to November 2016.

However, by the start of this month the total had lept to 1,249 with an average value of £407, according to data site Moneyfacts. While this represents a 27% increase in just a year, the total slipped back slightly to 1,203 today, with the average cashback amount at £409.

The only down side to the change is in the maximum cashback amount available, which has slipped from £2,500 seen in May 2017 to £1,000 now.

Charlotte Nelson, finance expert at Moneyfacts, said: “Following the recent base rate rise, many borrowers are starting to look at the cost of their mortgage more closely, so it’s great news that there’s been an increase in the number of deals on the market that offer a cash rebate.

“Even better, borrowers are likely to see more cash than they did a year ago, with the average cashback amount having increased by £41 to stand at £409 today, allowing borrowers to get a little something for nothing.

“Rates have started to go up in the past few months, so cashback incentives have stepped into the void somewhat, offering a simple way for providers to keep drawing in customers. Maybe that’s why 80% of the five-year fixed rate Moneyfacts best buys now have this type of freebie in its incentive package.”

Higher Loan-to-Value incentive

However, Moneyfacts noted that cashback is usually considered an incentive for those with higher loan-to-values (LTV).

“That’s why first-time buyers will be disappointed to find that since the Base Rate announcement the number of deals with cashback available to them has shrunk by 30%, from 460 products available to those with a 5% or 10% deposit on 1 November to 321 today,” Nelson said.

She added that while borrowers may be wary of getting something for nothing, a deal with cashback can often work out to be the most cost-effective.

“At first glance the lowest five-year fixed rate from TSB at 1.74% (with £995 fee and no incentive package) appears to be the best deal. However, Nationwide Building Society’s 1.79% five-year fixed rate with £500 cashback (£999 fee) works out slightly cheaper in terms of true cost (based on £200k mortgage over a 25-year term).

“Cashback deals are often associated with higher rates and fees, yet as more make their way into the best buys this is not necessarily the case. Savvy borrowers should use this latest cashback trend to their advantage. Additionally, they can often receive even more of a cashback boost if they are willing to switch current accounts, but should always consider all options first to ensure they get the best deal for them.”