Lenders increasingly offering freebies to tempt mortgage borrowers
Over the last few months, strong competition between lenders has driven down the cost of borrowing. It is now possible to fix your mortgage for two, three or five years at record low rates with most lenders offering cut-price deals to win business.
With so many rates available, banks and building societies have increasingly been forced to come up with new ideas in order to make themselves stand out from the crowd. This has led to a huge increase in the range of 'incentive packages' offered alongside their mortgages, and new research shows that three in four deals have some sort of 'freebie'.
Almost 3,000 mortgage deals now come with 'freebies'
As mortgage rates have fallen, lenders have started to look beyond the interest rate in order to sell their deals to new borrowers. What this means is that more and more banks and building societies are focusing on the other incentives that accompany their mortgage products.
New research from the financial analysts Moneyfacts has revealed that mortgage deals with an incentive package now represent three-quarters of the entire mortgage market giving borrowers plenty of choice when it comes to securing a truly beneficial deal.
"The current level of competition in the mortgage market means that borrowers are not just being offered headline-grabbing rates, but also some of the most cost-effective mortgages they've perhaps ever seen," says Charlotte Nelson, finance expert at Moneyfacts.
"Indeed, a staggering 75% of the mortgage market now offers borrowers some form of incentive, an increase of 13% in just one year alone. This is because providers are finding it increasingly difficult to stand out from the crowd to attract new customers thanks to the rate-cutting frenzy that has gripped the mortgage sector. The incentive package is therefore is great way to distinguish themselves from other lenders."
Moneyfacts research shows that there are now over 2,800 mortgage deals with incentives on the market, up from 2,462 a year ago and just 1,578 in 2011.
Many of the 'freebies' are aimed at keeping costs to a minimum, to help first-time buyers and remortgage customers with the associated costs of securing a new mortgage. Incentives being offered include:
- Free legal fees
- Free valuation
"With so many more deals on the market to choose from, savvy borrowers will definitely be able to turn the situation to their advantage and minimise some of their upfront costs," adds Nelson. "Cashback is chiefly targeted towards first-time buyers who have even less cash to spare than most, so it's understandable that cash rebates of up to £1,500 can turn the heads of mortgage hunters.
"However, borrowers need to bear in mind that any cashback offered may not be paid until the deal is completed, so they will need to factor this delay into their financial planning. They should also remember to look at a mortgage product as a whole and not be swayed by incentives alone – the idea of getting something for nothing sounds great, but the whole package should be weighed up to ensure the best deal is obtained."