Cashback mortgages are an option that is offered by many UK lenders - but the main problem can be working out whether this sort of mortgage is right for you, and which lender to apply to.
The Revolution team regularly supports clients seeking a cashback mortgage who have been turned down due to a low credit score, or due to variable income streams.
Let's explain how cashback mortgage work, whom they're best for, and how to establish whether you're getting a good deal. For more advice from the independent mortgage experts, contact Revolution Brokers on 0330 304 3040, or email the team at info@revolutionbrokers.co.uk.
In essence, a cashback mortgage gives you an incentive to choose this product, with a cash payback. You can choose between multiple different types of offer, each of which will differ with the lender, and the incentives available.
There are also terms and conditions about the cashback incentive, so it's vital to understand how this impacts your overall costs.
Usually, you get the cashback when the mortgage completes. Your lender must let you know what the cashback value will be, when it will be released, and what the conditions are.
In some cases, you get the cash as a lump sum via bank transfer, and in others, it is sent to your solicitor and used to cover their fees.
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
Cashback mortgage pitfalls:
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:
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.
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:
As your broker, Revolution compares each deal on its own merit, considering factors including:
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 |
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.
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.
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.
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%.
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:
You can potentially port your mortgage to a new property, although it's vital to consult an independent broker before doing so.
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.
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.
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.
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.
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.
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.
Your mortgage offer will depend on several criteria, which the lender will assess to decide what they can offer. These include:
Yes, you can get a cashback incentive by switching from your lender to a new mortgage provider. High street banks can offer as much as £1,000 cashback on a remortgage.
In some cases, yes, if you are applying for a new mortgage to finance a move, you might be eligible for a cashback product. There are exclusions, with some lenders only accepting residential mortgage applications for a cashback deal.
Cashback mortgages can be structured in many different ways. You might get cashback on your mortgage payments, as a lump sum to pay for legal fees, or towards household running costs.
The below example shows a possible cashback mortgage structure:
|
Household expense |
Monthly outgoings |
Interest |
Interest earned |
|
Mortgage |
£800 |
1% |
£8 |
|
Water |
£50 |
1% |
£0.50 |
|
Gas |
£40 |
2% |
£0.80 |
|
Council tax |
£127 |
1% |
£1.27 |
|
Electricity |
£40 |
2% |
£0.80 |
|
Phone line |
£45 |
3% |
£1.35 |
There can be a monthly account fee for this type of cashback mortgage, so it is essential to seek independent advice before signing up to have a thorough understanding of the costs involved.
Mortgage calculators are indicative and can give a rough idea about what you could borrow, how much cashback you could get, and what the monthly repayments will be. However, they are not a reliable way to choose a long-term financial commitment, since calculators are often used to display paid advertised products, and cannot take into consideration your circumstances - and whether you'd be likely to be eligible for a displayed product. For exact rates and an idea about terms available on the market, contact Revolution Brokers on 0330 304 3040.
There are so many variables between mortgages and lenders that can be difficult to navigate without independent advice. The right lender for you will depend on whether you are employed or self-employed, how much you wish to borrow, what your deposit budget is, and whether you have any bad credit history. Applying directly to a bank can be problematic if you do not fit their criteria, and end up with a rejection that is recorded on your credit file. Other factors such as your age will dictate which lenders to apply to - which you might not know until after an application has been turned down. A whole-of-market broker will steer your application towards the appropriate lenders, with access to all the products on the market to ensure you get the best deal available. For independent advice on applying for a cashback mortgage, contact Revolution on 0330 304 3040, or email the team at info@revolutionbrokers.co.uk.
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.
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