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Four key points to know about mortgage cashback deals

Four key points to know about mortgage cashback deals
Matt Browning
Written By:
Matt Browning

Halifax launched a deal for first-time buyers, offering borrowers a sizeable cashback deal worth up to £1,000.

But, customers should keep an eye out for some important points to consider before deciding to pocket the cash as part of the deal.

Last week, the lender priced its cashback deals at 4.6% for a two-year fixed rate, which drops to 4.31% for five years and rises to 4.93% for 10. Both two- and five-year deals go up to 95% loan to value (LTV), while the 10-year fix is an option at 60% and 75% LTV.

As well as £500 cashback, there is a £999 fee to pay too, which is available between 60% and 80% LTV for two- and five-year fixes and covers a maximum loan of £2m. The more it finances your property, the lower the maximum loan amount, dropping to £750,000 for 90% LTV and £570,000 for 95% LTV.

When you choose the green first-time buyer deals, the same prices apply, but a bigger £1,000 cashback perk is included.

If you prefer to have a higher LTV, then HSBC, which has cut its rates this month, also offers attractive rates for first-time buyers.

The lender offers a five-year fix deal priced at 4.55% for 80% and 85% LTV, which involves a £999 arrangement fee, with £500 in cashback.

Here are four tips on what to consider, from Nick Mendes, the head of marketing at market mortgage broker John Charcol.

Four points to consider with mortgage cashback deals:

  1. Is there a difference in rates? Mortgage rates are typically higher than the non-cashback alternatives.
  2. How is it paid? The cashback is paid to you on completion of the mortgage or paid through your solicitor. The money is not taxed and will be transferred to your account to be spent on whatever you wish.
  3. Does it impact other incentives? When you choose a cashback deal, it will be very rare to also have other incentives included. That means free legal fees and complimentary valuations are unlikely to be added on. Typically, it will be one or the other.
  4. What other perks are there? The positive of opting for cash back is that you can choose whichever solicitor you like. Furthermore, as you’re paying, you may have more control over that side of the transaction.

Mendes said: “The extra cash could also be handy for those unexpected moving costs, putting toward stamp duty or valuations or home furnishing sooner than anticipated. Either way, depending on the amount, it’s yours to spend as you wish.

“It’s important when choosing a mortgage that you’re not favouring a deal because cashback is on offer over another mortgage that isn’t. Cashback might be useful in the short run, but you could find another deal without that is cheaper and would save you more than the cash back on offer in a short period of time.”

Cashback offers value while the market remains volatile

On cashback deals, Rachel Springall, finance expert from Moneyfacts, points out that while mortgage interest rates are volatile, borrowers can still get an attractive package. This is possible through incentives, whether it is cashback, a reasonably priced product fee or, indeed, no fee at all.

She added: “First-time buyers might need to save on the upfront cost of their deal or opt for a mortgage that comes with a bundle of incentives, such as cashback.

“These packages may be more suitable if new buyers have exhausted all their savings on a deposit, removal and furnishing costs.”