What Are Cashback Mortgages - and How Do They Work?

Question 1

What are the Advantages of Cashback Mortgages?

Answer

There are both pros and cons to any mortgage product - let's run through the main benefits, and the pitfalls to be aware of:

Cashback mortgage advantages

Incentives can be used for moving or arrangement fees.
Cashback is sometimes available to use for any of your costs.
In some cases, the incentive will cover your legal fees.

Cashback mortgage pitfalls:

You might be charged a penalty if you pay back your mortgage early.
There are limits on over-payments in your introductory period - usually two to five years.
If you remortgage, you might be charged a value that will reduce your cashback.

Question 2

What Value Cashback Can I Get Through my Mortgage?

Answer

Typically, the cashback on offer ranges from £200 to £1,000, but that all depends on what the lender is offering.

The amount of cashback depends on:

Other incentives involved in the mortgage product.
Whether you are a first-time buyer or existing homeowners.
If you are remortgaging or taking out a purchase mortgage.
Whether you are already a client of the lending bank.

Question 3

Which UK Lenders Offer the Best Cashback Mortgage Deals?

Answer

There are lots of different offers, and new products come onto the market regularly.

The best way to find an excellent cashback mortgage deal is to consult an independent broker who has access to every arrangement, from every lender on the market.

Question 4

Is it Best to Use a Broker if I am Looking for a Cashback Mortgage?

Answer

A broker is invaluable in making sure you get the best cashback deal and are applying to lenders who will be in a position to approve your application.

Each lender has its own criteria, which will dictate whether they can offer to lend, including criteria such as:

Your income and employment stability.
Your age.
Whether you are a first-time buyer or remortgaging.

As your broker, Revolution compares each deal on its own merit, considering factors including:

What interest rate is offered, and whether it is the most competitive rate available.
How valuable the introductory offers are and how long they last.
Whether there are early repayment penalties to factor in.
How much cashback is on offer and whether it suits your purposes?

Question 5

What Interest Rates are Payable on a Cashback Mortgage?

Answer

There isn't a set rate at which a cashback mortgage is charged. A lot depends on whether you have a fixed rate interest period, and if so for how many years you are locked into that interest rate.

Variable and tracker mortgages will charge different interest rates over time, depending on the base rate, so there are risks and rewards to analyse in both options.

It is also essential to consider what the total interest will be over the term of the mortgage, compared to how much cashback is being offered on completion.

In some cases, the interest rates make the mortgage fees above the cashback; so another product would be more cost-effective.

The below table compares four different cashback mortgage products to demonstrate how the value of cashback and the rate of interest linked with that offer will impact your monthly repayments and total mortgage cost.

This example is based on a property purchase of £200,000:

	Cashback offer	Fixed interest rate	Monthly repayment	Annual repayment	Total repayment
Product one	£1,000	2.5%	£897	£10,764	£269,100
Product two	£750	2.4%	£887	£10,644	£266,100
Product three	£500	2.3%	£877	£10,524	£263,100
Product four	£250	2.1%	£867	£10,404	£260,100

Question 6

Why is it Essential to Compare Cashback Mortgage Rates?

Answer

As the above example shows, if you choose the best cashback offer in terms of monetary value, you may end up paying back several thousand pounds more over the lifetime of the mortgage.

Therefore, it's vital to think about what interest rate is being charged, and what the annual and total repayments costs will be.

Revolution can help compare mortgages on a like-for-like basis so you can make an informed choice about which product is most affordable.

Question 7

Can I Get a Cashback Mortgage as a First Time Buyer?

Answer

You can, yes, and there are specific first-time buyer cashback mortgages designed to make it more affordable to purchase your first property.

If you are buying with a partner, you must both be first time buyers to be eligible for a cashback mortgage offered to this type of borrower.

Question 8

Is There a Maximum I Can Borrow on a Cashback Mortgage as a First Time Buyer?

Answer

Generally, a first-time buyer cashback mortgage will be up to 85% Loan to Value - meaning you need a 15% deposit.

There are products at 90% and even 95%, although eligibility depends on the lender and which criteria they require you to meet.

The LTV you are offered depends on what sort of property you are buying, your income and employment stability, and meeting other criteria.

Question 9

What Deposit Do I Need to Take Out a Cashback Mortgage?

Answer

Some niche cashback mortgages require zero deposit - generally, though, you will need at least a 5% or 10% deposit for any cashback mortgage.

Cashback mortgages are more common with a deposit of 15% up to around 25%.

Question 10

Can Anybody Apply for a Cashback Mortgage?

Answer

While you can apply, it is essential to know that you meet the lender eligibility criteria beforehand, to avoid rejected mortgage applications that can have a negative impact on your credit score.

Lenders will look at several different factors to decide whether they can offer a cashback mortgage:

How much you earn.
Your type of employment.
Credit scores and ratings.
Your age.
What property you wish to buy.

You can potentially port your mortgage to a new property, although it's vital to consult an independent broker before doing so.

Question 11

Can I Get a Cashback Mortgage with Bad Credit?

Answer

Having adverse-credit makes you a higher risk applicant, and so some lenders will not be able to help.

However, mortgage advisors works with a vast network of lenders, including bad credit specialists, so there is usually a deal out there.

Question 12

What Mortgage Can I Borrow on a Cashback Offer?

Answer

Lenders use your income to decide on the maximum they can lend you. Typically, that is based on 4.5 times your annual income, although some lenders can offer up to five or even six times your salary if you meet their other criteria.

The lender will need to know whether you are employed or self-employed and whether your income includes variables such as bonuses, overtime and commissions.

Each lender will have a different policy as to how they treat these types of income, as well as other revenue such as benefits. Therefore it's essential to use a whole-of-market broker to ensure you apply to a lender that will be able to approve your application.

Question 13

Are There Cashback Mortgages for Retired People?

Answer

If you are retired, or approaching retirement age, you might find that mainstream lenders and high street banks are reluctant to lend to you.

Many banks have a maximum age of 75 or 85, although niche lenders may have no upper limit at all.

Question 14

Can I Use a Cashback Mortgage to Buy a Rental Property?

Answer

You can, although you'll usually need a 25% deposit to purchase a buy to let property with a cashback mortgage.

Some lenders can accept smaller deposits of 20% or even 15%, so it all depends on the lender and how closely you meet their lending terms.

Question 15

Can I Use a Cashback Mortgage to Buy a Second Home?

Answer

Yes, there are no stipulations that a cashback mortgage can only be used for a primary residence.

However, it's worth bearing in mind that affordability criteria will be stricter, as with any second home mortgage. The lender will need to be comfortable that you can afford to keep up with both repayments on your first and second homes.

Question 16

Where Can I Get the Lowest Rates on Cashback Mortgages?

Answer

It can be difficult to compare products directly or to know which lenders offer the best cashback mortgages without having access to off-market products, as many niche mortgages are provided only through accredited brokers.

Likewise, online rates tables are useful, but not comprehensive since these tend to be geared towards paid advertisements, rather than an independent view of the best options on the market.

The ideal way to find the most attractive deals is to consult an experienced broker who can offer unbiased advice on which products offer the best value for money.

What Are Cashback Mortgages - and How Do They Work?

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