First-time buyers hit by decline in cashback mortgages
A decade ago, cashback mortgage deals were all the rage. Lenders would offer huge cash incentives to borrowers in lieu of a fixed or discounted rate, giving new homeowners an injection of cash when they needed it most.
Now, new research has found that mortgage borrowers are much more likely to find a competitive fixed or tracker deal than a cashback product. The choice of cashback mortgages has fallen sharply in recent months as lenders shy away from this type of deal.
Choice of cashback deals falls sharply in last year
In the late 1990s and 2000s, mortgage lenders would frequently offer cashback deals in order to stand out from the competition. It was not unusual for a lender to offer up to 5% of the mortgage as a cash lump sum, aiming to give a new homeowner a large cheque to spend on their new property.
Fast forward to 2016, and cashback mortgages are becoming much less common. New research has found that the choice of cashback deals fell by 280 in the last 12 months with the average amount of cashback also falling.
The choice of cashback deals fell from 974 in June 2015 to 694 last month, with the average cashback amount falling from £479 to £343.
Charlotte Nelson, finance expert at Moneyfacts, who carried out the research, says: "In the past, incentive packages with a cashback offer enabled borrowers with limited budgets to ease the upfront costs of securing a mortgage, but anyone looking for this 'freebie' today would struggle, as not only is the number of deals in decline but the average size of the rebate has also fallen."
One notable fact is that the choice of cashback deals has remained relatively stable at a higher loan-to-value. We look at this next.
Reduction in cashback sums hitting borrowers with tight budgets
The latest figures show that while the choice of cashback products has fallen across the mortgage market, the number of deals aimed at buyers with a low deposit has remained stable.
Lenders have tended to target cashback deals at higher loan-to-values and so the result of the dwindling amount of the benefit is that borrowers with tighter budgets are being hardest hit.
Nelson provides an example: "For instance, the average cash rebate that is offered to borrowers with a 10% or 15% deposit (90% and 95% LTV) has fallen by £208 over the course of one year, almost putting the figure back to 2013 levels.
"Nevertheless, savvy borrowers can still hunt down deals that offer cashback of up to £1,500. However, borrowers need to assess the whole mortgage deal to ensure that it's suitable for them, and if they do get a deal offering a cash rebate, they will need to find out whether the money will be paid before or after the deal is completed."