We all like getting something for nothing, and cashback on something you were going to get anyway can be the Holy Grail. This is perhaps why cashback credit cards and websites are growing in popularity, but the best offers of them all can often be found when you're taking out a mortgage – and happily, our latest research shows that the number of mortgages offering cashback has soared by 27% in the last year alone.
Buying a new home or getting a new mortgage can be an expensive process, which means cashback of any kind can be a great way for cash-strapped borrowers to reduce the costs that may occur. And, not only have they got more cashback deals to choose from, but the average amount of cashback is on the rise, too, as the table below highlights:
Unfortunately, we've seen a slight drop in the number of deals available since the start of this month, but much of that could be attributed to the base rate rise that occurred on the 2nd, with providers having since readjusted their mortgage ranges. There's also been a sharp drop in the highest amount of cashback available, particularly in the last six months, but given that the average is on the rise, it's still pretty positive!
The growing number of cashback deals could be particularly welcome now that the mortgage landscape is changing, as Charlotte Nelson, finance expert at moneyfacts.co.uk, explains:
"Following the recent base rate rise, many borrowers are starting to look at the cost of their mortgage more closely, so it's great news that there's been an increase in the number of deals on the market that offer a cash rebate. Even better, borrowers are likely to see more cash than they did a year ago, with the average cashback amount having increased by £41 in the last year to stand at £409 today, allowing borrowers to get a little something for nothing.
"Mortgage rates have started to go up in the past few months, so cashback incentives have stepped into the void somewhat, offering a simple way for providers to keep drawing in customers. Maybe that's why 80% of the five-year fixed rate mortgages in the moneyfacts.co.uk Best Buys now have this type of freebie in its incentive package."
However, it isn't all good news, and first-time buyers – those who arguably could do with the greatest level of support – may fare worse than most.
"Cashback is usually considered an incentive for those with higher loan-to-values (LTVs)," continued Charlotte, "which is why first-time buyers will be disappointed to find that the number of deals with cashback available to them has shrunk by 30% since the base rate announcement, from 460 products available to those with a 5% or 10% deposit on 1 November to just 321 today."
This is why it's vital to thoroughly compare the options to make sure you're getting the best first-time buyer mortgage for your needs, and always check the small print so you know exactly what you're getting, as well as the kind of incentives you can benefit from.
Some may be wary of getting something for nothing, and may think that deals that come with such incentives will be more expensive in the long run – when in actual fact, a deal with cashback can often work out to be the most cost-effective.
For example, our data shows that the joint lowest-priced five-year fixed rate mortgage comes from TSB, priced at 1.74% with a £995 fee, available at 60% LTV. However, it doesn't come with an incentive package, which means that Nationwide Building Society's 1.79% five-year fixed rate with £500 cashback (and a £999 fee) actually works out slightly cheaper in terms of true cost, based on a £200,000 mortgage over a 25-year term – with TSB's deal you'll pay £10,866.46 in the first year (including the fee), while Nationwide's deal will set you back £10,427.93 (once cashback has been taken into consideration), a saving of £438.53.
"Cashback deals are often associated with higher rates and fees, yet as more make their way into the Best Buys this is not necessarily the case," concluded Charlotte. "Savvy borrowers should use this latest cashback trend to their advantage. Additionally, they can often receive even more of a cashback boost if they are willing to switch current accounts, but should always consider all options first to ensure they get the best deal for them."
Find the best mortgage rates out there, and make sure to look for cashback!
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.