FIRST-time buyers can scoop bumper kickbacks worth thousands of pounds as another major lender is now offering mortgages with lucrative benefits.
Skipton Building Society is the latest lender to give borrowers cashback when taking out selected deals.
Buyers with a deposit of 5% can get £1,500 with a fee-free five-year fixed rate deal of 5.89% from the building society.
The deal brings more choice for borrowers looking for a cash boost when buying a home.
Accord Mortgages, Yorkshire Building Society and Hanley Building Society also offer buyers cashback worth up to £2,000 with selected deals.
HSBC is another big lender providing mortgages with up to £1,600 cashback on selected deals, while Nationwide, Coventry Building Society and West Brom Building Society are among other names with these products.
However, experts urge prospective borrowers to be cautious and do their research, as these deals may not always be the financial boon they initially appear.
A cash lump sum is particularly appealing when buying a home as it could go on furniture, renovation work that needs to be carried out or even legal fees racked up during the sale.
However, cashback benefits needs to be considered within the wider cost of the mortgage to work out if it’s the right deal for you.
When sourcing a mortgage, you need to take account of the rate offered, plus any product fees to get the whole cost of the deal.
These deals often come with higher rate or big fees that could more than cancel out any cashback on offer.
For example, Nationwide’s cashback mortgages offer £500 back to borrowers but they come with a hefty product fee of £1,499 which is then usually added to the loan.
And Skipton’s rate of 5.89% is also beaten by First Direct which currently offers a five-year fixed-rate of 5.32% at 95% LTV.
Over time, this could mean that the savings made on repayments would eventually be higher than the £1,500 of cashback received with Skipton.
Rachel Springall, from comparison site Moneyfactscompare.co.uk says: “The new deal from Skipton Building Society includes a healthy cashback incentive, which could be ideal for cash-strapped borrowers who need a cash injection to cover other mortgage related costs, such as appointing a solicitor and a removal firm.”
But, first-time buyers should carefully consider the long-term financial implications of a cashback mortgage, says Nicholas Mendes from broker John Charcol.
He said: “While the upfront cashback and associated benefits can provide immediate financial relief, evaluating whether cheaper deals on the market might ultimately save more money in the long run is crucial.
“Ensuring the mortgage aligns with long-term financial goals and fits within the buyer’s budget will help make an informed decision about whether Skipton’s £1,500 cashback mortgage is the best choice.”
Calculating the overall cost of a mortgage can be a little tricky.
As with traditional mortgages, loans with cashback deals can have either fixed or variable interest rates.
The deals are also available at a range of loan-to-value ratios, making them open to borrowers with both big and small deposits.
Your loan-to-value is the ratio of how much deposit you put down VS the amount the lender loans you.
You need to add up repayments over the entire term on prospective deals and add fees before taking off cashback – you can then compare these final sums.
A good mortgage broker should be able to help you with these calculations.
It’s not just the financial aspects of a deal that could make it suitable – the term available, overpayment options, and income assessment are among other important considerations about whether a deal is right for you.
As well as cashback, the deals could come with other perks. For example, Skipton also offers free valuations, as well as discounts on surveys.
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
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