Nottingham Building Society is just about the latest lender to provide first-time buyers up to lb1,000 in cash, but should you be tempted through the incentives offered by mortgage brokers?
Here, we crunch the numbers to see whether the cash lenders provide you with is truly a ‘bonus,’ or whether you wind up paying more in fees and rates.
Nottingham launches cashback mortgages
Nottingham Building Society has launched a new selection of cashback mortgages for first-time buyers.
The fixed-rate deals offer incentives of lb1,000 for borrowers at 90% loan-to-value (LTV) and lb500 for those borrowing at 95%.
But is Nottingham in front of the game and have cash incentives on first-time buyer mortgages become commonplace?
How many first-time buyer mortgages come with cashback?
When we crunched the numbers in February, we discovered that a more than the usual quarter of fixed-rate mortgages available to first-time buyers came with cashback. 3 months on, that’s still the case.
Right now, 757 of the 2,753 products available to first-time buyers have some form of cashback (27% of deals), according to data from Moneyfacts.
This figure increases dramatically, however, when we look at fixed-rate products readily available for first-time buyers with small deposits – more than four in ten 90% mortgages now come with cashback, and 1 / 2 of 95% deals do so.
| Maximum LTV | Number of fixed-rate deals | Number of handles cashback | Percentage of deals with cashback |
| 90% | 729 | 312 | 43% |
| 95% | 289 | 151 | 52% |
How much cashback are lenders offering?
Our research shows that lenders are currently offering cashback ranging from lb200 to lb1,500, meaning the lb1,000 available from Nottingham is extremely competitive.
For both 90% and 95% LTVs, we found that lb500 is easily the most common amount of cashback.
How competitive are cashback mortgages?
A little extra cash in your pocket is definitely welcome, however the big question is whether lenders are making up for their generosity elsewhere – perhaps by charging you a higher interest rate.
Indeed, whenever we look at two and five-year fixed-rate deals at 90% and 95% LTV, we are able to see that no market-leading introductory minute rates are on products that come with cashback.
The tables below show how, in most cases, the greater cashback a lender provides you with, the more they charge you in interest.
90% loan-to-value
Two-year fix
| Cashback | Lender | Lowest initial rate | Revert rate | APRC | Fees |
| None | NatWest | 1.79% | 4.24% | 3.8% | lb995 |
| lb250 | NatWest | 1.91% | 4.24% | 3.9% | lb995 |
| lb500 | Virgin Money | 1.96% | 4.99% | 4.4% | lb995 |
| lb1,000 | Skipton | 2.21% | 3.99% | 4.4% | lb995 |
Five-year fix
| Cashback | Lender | Lowest initial rate | Revert rate | APRC | Fees |
| None | Coventry | 2.25% | 4.74% | 3.8% | lb999 |
| lb250 | NatWest | 2.32% | 4.24% | 3.5% | lb995 |
| lb500 | Coventry | 2.29% | 4.74% | 3.9% | lb999 |
| lb1,000 | Tesco | 2.44% | 4.04% | 3.5% | lb995 |
95% loan-to-value
Two-year fix
| Cashback | Lender | Lowest initial rate | Revert rate | APRC | Fees |
| None | Newcastle | 2.59% | 4.49% | 5.1% | lb498 |
| lb250 | Leek United | 2.95% | 5.69% | 5.3% | None |
| lb500 | Tesco | 2.82% | 4.04% | 3.9% | lb995 |
| lb1,000 | Accord | 3.12% | 4.25% | 4.6% | lb495 |
Five-year fix
| Cashback | Lender | Lowest initial rate | Revert rate | APRC | Fees |
| None | Hanley Economic | 2.99% | 5.44% | 4.6% | lb999 |
| lb250 | Leek United | 3.29% | 5.69% | 4.8% | None |
| lb500 | Platform | 3.19% | 4.99% | 4.4% | lb999 |
| lb1,000 | Tesco | 3.38% | 4.04% | 3.9% | lb995 |
| lb1,500 | West Bromwich | 3.44% | 4.49% | 4.2% | None |
How much will my payments be on the cashback mortgage?
A higher type of loan results in a greater payment per month, however in some cases the main difference could be negligible. For instance, you might be quite pleased to pay lb10 per month extra to obtain lb500 cashback up front, whereas you’d be less wanting to pay lb50 per month more.
With this in your mind, we’ve modelled how much each one of the deals cost yourself on a monthly basis on your two or five-year introductory period.
Our figures are based on getting a home loan on a lb200,000 property (so financing of lb180,000 at 90% LTV, or lb190,000 at 95% LTV).
Is cashback worthwhile?
As you can observe in the charts above, your monthly obligations would slightly increase depending on the amount of cashback you receive up front.
At 90% LTV, the least expensive two-year rate without cashback is available in just lb36 per month less expensive than the very best rate with lb1,000 cashback. That means that over the 2 yrs, you’d theoretically be lb136 better off by taking the cashback deal.
But whenever we take a look at two-year deals at 95%, the space stands at lb52 a month – and therefore over the period the cashback deal could be lb248 more expensive.
As you might have gathered, whether you should have a cashback product depends upon two things: the specifics of the offer itself and how much you need the upfront cash.
When do lenders pay cashback?
When comparing mortgage deals, you might observe that some lenders offer cashback but additionally charge an upfront fee. For example, the cashback may be lb500, however the fee may be lb1,000.
This doesn't mean the cashback will be subtracted from the fee. Instead, the money incentive will be paid to your account separately following the mortgage has begun.
How soon you will get the cash differs from bank to bank, so check their terms and conditions. Some will pay within Fourteen days of the mortgage commencing.
Advice in your mortgage options
There are thousands of mortgages out there for first-time buyers, so it is a good idea to consider professional advice from the whole-of-market mortgage broker, who can assess all of the available deals to find the best for you.
A good broker also needs to let you know if the best deal is only available from a lender.
