> Cash Back Mortgage - UK Guide
In a nutshell
A cash back mortgage gives you a cash payment when you take out your mortgage product. This will either be a percentage of the money you borrow or a special-offer fixed sum.
Best Mortgage For
Generally first-time buyers. However, a cash back deal can be offered to other mortgage buyers either as an initial incentive or as a regular part of a mortgage deal.
When you take out a cash back offer, you'll most probably tie yourself into a pre-specified mortgage deal with your lender - usually for a few years. These deals can be for standard variable or tracker rates or for special deals such as fixed and capped rates and discounted offers. Generally, if your cash back is tied into another special offer deal you'll be offered a smaller sum or lower percentage as cash back. Some lenders are now moving cash back deals into long-term products - so, you can, for example, take out a life tracker mortgage that gives you a cash back payment based on a percentage of your loan value every two years.
Typical Amount to borrow
Most lenders will offer standard borrowing amounts for this type of mortgage of between 3-4 times your salary for a single application and 2.5-3 times your salary for a couple. If you need something a bit more flexible, however, then you'll probably be able to find it. So, you can get cash back deals for 100% mortgages and some lenders will let you borrow more than 100% of your property value.
You can get cash back deals for 100% mortgages and standard deposits vary from 5%+. You may find that you get better deals for higher deposits.
Cash back deals often suit first time buyers best - this is a time when money is traditionally quite tight and the cash can be used to cover other property expenses. So, you can, for example, fit yourself out in furniture or do up your property before you move in. Here, your cash back can simply save you quite a lot of money. The new long-term cash back deals can often be a good solution too. Here, you'll be given a cash back sum every few years based on the value of your mortgage - you can take the cash or offset it against your loan. But, there is a price to pay here and you'll need to investigate how good the rates are first.
What to look out for
A cash back mortgage deal will give a short-term solution to a cash-flow problem. It may, however, tie you into a mortgage that isn't as good as you could have got without the cash back offer and you may find yourself tied in for a good few years. So, you may be immediately paying standard variable rates, for example, rather than being able to benefit in the medium term from a special rate deal. You'll need to weigh up the pros and cons of taking the cash back against what you might lose by taking it. You can arrange special deals such as capped/fixed rates or discounted periods with a cash back option but the chances are you won't get as big a cash payout this way. Lenders may also charge you redemption fees if you change your mind about the deal and some may charge mortgage indemnity fees (MIGs) if you borrow over a certain percentage of the value of your property. MIG charges vary - some lenders won't charge them and others have different rates (i.e. borrowings of 90% or 95%). However, a cash back deal can sometimes be used as just one incentive for first time buyers. So, it may come as part of an overall package with special rate deals and lenders may waive arrangement fees and contribute to legal costs.
If a quick cash injection is important to you then this is your best choice. As an alternative, you might want to make sure that you shop around for the best overall deal that will save you money in other ways - i.e. by using fixed rates, payment holidays, no arrangement fees and/or the payment of legal fees etc.