UK homebuyers are being wooed by lenders offering cashback mortgages, which can provide sums of up to £2,000. Major players like HSBC and Skipton Building Society are among those providing at least £1,000 in cashback, but borrowers must carefully consider the overall deal.
A recent analysis by Moneyfacts found that 35% of all residential mortgage products feature some form of cashback, with this figure dropping to 25% when excluding green mortgage products. Notably, 96% of green mortgage deals include a cashback incentive, often for properties with an EPC rating of A or B.
But the allure of 'free money' comes with caveats. Analysis by Which? revealed that 44% of mortgages offering at least £500 in cashback also carry upfront fees higher than the cashback received. This means many borrowers could end up paying more in fees than they gain from the incentive.
Furthermore, a mortgage with a slightly higher interest rate but no upfront fees can prove more cost-effective in the long run. For example, on a £250,000 mortgage over 25 years, a rate difference of 0.2% translates to approximately £30 more per month in repayments. This could add up to around £280 over a two-year fixed term, despite the initial appeal of the cashback.
Cashback is typically paid after the mortgage completes, which means it cannot be used for crucial upfront expenses like deposits or solicitor's fees – a significant consideration for first-time buyers who often face major initial outlays. Lenders use cashback to encourage existing customers to remortgage with them, such as Leeds Building Society offering £200 and Yorkshire Building Society providing £250 cashback.
The current house price landscape varies across the UK, with some regions experiencing sustained growth while others see stabilisation. Mortgage rates are influenced by the Bank of England's base rate, which has had a significant impact on fixed-rate mortgages since the start of the year.