March 23, 2017
Should you choose a mortgage with an incentive?
Mortgages offering incentives like cashback are becoming
increasingly popular to draw homebuyers in. Is this the right option? We take a
look at the pros and cons.
More and more lenders now offer mortgage deals which come
with incentives to attract borrowers and to differentiate themselves from the
competition. Mortgage rates are currently extremely competitive, so an extra
benefit or bonus is one of the only ways for a deal to stand out from the crowd.
Incentives can take several different forms. For example, lenders
will require a valuation of a property to make sure it is security for the loan
and worth as much as the homebuyer is paying for it. The cost of a valuation
will depend on the size of the property, but typically starts from around £250,
rising to about £2,500 or more for homebuyers purchasing high-end homes.
Some lenders will offer a free valuation as part of a
mortgage deal, although this will usually only cover the cost of a basic valuation
report rather than an extensive structural survey, which many people opt for
when buying a home. Also, lenders may set a minimum purchase price and only
offer free valuations on properties over that value.
Other lenders provide free legal work for those who are mortgaging,
but remember to check the small print for any restrictions.
Cashback is becoming one of the most popular mortgage
incentives. Lenders will pay borrowers a lump sum, typically starting from
£250, when their mortgage deal completes.
The amount of cashback offered has crept up in size in
recent years, with many lenders now providing cashback of around £500, although
some payments can be as high as £2,500. This can be particularly appealing for
first-time buyers who often put the money towards stamp duty or moving costs.
However, it’s important that homebuyers do not to base their
mortgage decision on incentives alone. Deals which offer cashback or any other
incentive may charge a higher interest rate than deals which don’t come with
any added extras, making them more expensive overall.
It’s vital that homebuyers think carefully about how
important up-front cash is compared to lower monthly payments. Could an
interest rate saving outweigh any incentive in the longer term? If in doubt,
homebuyers should seek professional advice on the best combination of rate,
fees and incentives to suit their individual circumstances.
Need some mortgage advice? Get in touch with L&C Mortgages today.