Although interest rates may be coming down even further so are the number of cashback mortgages available that are especially helpful to first-time buyers…
It wasn’t long ago that if you were looking for a cashback mortgage, you could be confident of finding one fairly easily. These deals, where lenders give a cash sum back to the house buyer, were particularly welcome for first-time buyers on a tight budget. That isn’t the case today.
New research, by finance expert at Moneyfacts, Charlotte Nelson,has shown that instead of a cashback deal, mortgage lenders are more likely to offer a fixed rate or tracker mortgage. In the 12 months leading up to June 2016, available cashback deals fell from 974 to 694, a 29% decrease.
Cashback amount falls sharply along with deals available
It’s not just the number of cashback mortgages falling sharply but the amount offered as part of the deal. Over the same period of 12 months up to June 2016, the average cashback amount offered fell from £479 to £343, a £136 drop.
All this is a major change to what was happening in the late 1990s and the 2000s. Then, it was possible to find lenders offering up to 5% of the mortgage as a cashback amount as part of the mortgage deal. Now, lenders are shying away from the cashback mortgage as they try to find more cost-effective ways to tempt homebuyers, possibly to compensate for record low interest rates.
Nelson says anyone looking for this kind of ‘freebie’ today would struggle to find one. She adds: “These incentive packages with a cashback offer attached would be welcome by borrowers with limited budgets as it eases the upfront costs of securing a mortgage. Now, the number of deals and average size of cashback amounts offered has fallen significantly.”
Cashback more accessible with higher loan-to-value mortgages
One area of mortgages where cashback deals are more readily available is the higher loan-to-value mortgages. As a result, it’s borrowers with tighter budgets that are being hit hardest.
Nelson adds: “The average cash sum offered by mortgage lenders to borrowers with a 10% or 15% deposit (90% or 85% LTV) has declined by £208 over the course of 12 months, which puts the cashback amount given back to the values seen in 2013.
“However, determined borrowers can still find cashback deals that give up to £1,500. At the same time, they need to assess the whole mortgage deal to make sure it’s appropriate for them and if they do get a cash back offer, they should find out if it’s paid before the deal is completed or after.”