As a cash-strapped first-time buyer, on offer one thousand pounds or more straight into your bank account may appear too appealing to turn down – but are mortgage incentives actually worthwhile?
It’s a great time to get a mortgage with a small deposit, with rates on 95% deals dropping as well as an increasing number of lenders offering incentives, including cash.
But does cashback on your mortgage really make a difference, or are you better focusing on long-term gains over short-term windfalls?
More mortgage deals available with cashback
Right now, 827 of the 2,924 fixed-rate mortgages open to first-time buyers come with some form of cashback – a bit more than the usual quarter.
The amount of cash on offer varies significantly from deal to manage, starting at lb250 and rising up to lb1,250 (or lb1,500 in Northern Ireland).
The table below shows how the percentage of first-time buyer handles cashback incentives has increased within the last Twelve months, as lenders battle for the first-time buyer market.
| Number of deals available to first-time buyers | Number of deals with cashback | Percentage of deals with cashback | |
| February 2022 | 2,819 | 656 | 23% |
| February 2022 | 2,924 | 827 | 28% |
Who provides the biggest cashback incentives?
The table below shows which lenders currently provide the biggest cashback incentives.
This is based on a lender offering at least one first-time buyer mortgage with cashback, and doesn’t necessarily mean you may expect this incentive on all its products.
| Maximum cashback | Lender |
| lb250 | Santander, NatWest, RBS, Chelsea, Danske |
| lb300 | Marsden |
| lb500 | AA, Atom, First Trust, Furness, Leek, Lloyds, Nationwide, Newcastle, Platform, Sainsbury’s, Skipton, Tesco, TSB |
| lb1,000 | Accord, Bank of Ireland, Barclays, Cumberland, M&S Bank, Monmouthshire, Newcastle, Post Office, Virgin, West Brom |
| lb1,250 | Yorkshire Building Society |
| lb1,500 | Bank of Ireland |
| 1% of mortgage advance | Skipton |
How do lenders pay cashback?
You might notice when comparing deals that some lenders charge fees, but also offer cashback. So, for instance, you might be charged lb1,000 but offered lb500 as an incentive.
This doesn’t mean the cashback will be subtracted from the fee. Instead, the incentive is going to be paid separately after the mortgage has started.
How soon you’ll obtain the cash varies from bank to bank, check their conditions and terms; some will invest in paying it within 14 days of the mortgage commencing.
How much difference does cashback make?
To find out if an incentive really makes a difference, let’s take a look at the projected costs of the cheapest cashback and non-cashback two-year fixed-rate deals at 90% and 95% loan-to-value (LTV).
We’ve based our calculations on purchasing a lb220,000 property with a 30-year mortgage term, and also have compared the cost of the offer over an initial duration of Two years, as we assume a savvy borrower would turn to remortgage at the end of their fixed-term.
90% LTV (10% deposit)
Of the very best 10 products at 90% LTV (by initial rate), two cashback deals – from Platform and Nationwide – make the top ten. Both, however, have a higher rate than the cheapest deal without cashback, which is from HSBC.
| Cashback | Lender | Initial rate | Revert rate | APRC | Fees |
| None | HSBC | 1.79% | 4.19% | 3.9% | lb999 |
| lb250 | Platform | 1.84% | 4.99% | 4.6% | lb999 |
Cost over two years:
| Deal | Monthly payment for first couple of years | Total paid over two years (repayments, flat fee, valuation fee) |
| HSBC (no cashback) | lb711 | lb17,064 |
| Platform (lb250 cashback) | lb716 | lb17,184 |
Conclusion:
Over 2 yrs, the Platform deal calculates lb120 (lb5 a month) more expensive compared to HSBC product, though after we element in the lb250 cashback, it’s actually lb130 cheaper overall.
95% (5%) deposit
At 95% LTV, just one product with cashback makes the top ten deals by initial rate – a mortgage from Tesco Bank with lb500 cashback.
| Cashback | Lender | Initial rate | Revert rate | APRC | Fees |
| None | Halifax | 2.68% | 4.24% | 4.1% | lb995 |
| lb500 | Tesco Bank | 2.82% | 4.04% | 4% | lb995 |
Cost over two years:
| Deal | Cost monthly during initial period | Total paid over 2 yrs (repayments, flat rate, valuation fee) |
| Halifax (no cashback) | lb846 | lb21,299 |
| Tesco (lb500 cashback) | lb861 | lb21,659 |
Conclusion:
The Tesco cashback deal works out lb360 (lb15 a month) more costly over the two-year period, but when we factor in the lb500 cashback, it’s actually lb140 cheaper overall.
So are cashback mortgages worthwhile?
In the two examples above, the quantity of cashback available makes or breaks if the deal wins out, although not towards the extent that you should base your mortgage choice about this alone.
After all, the general savings once cashback has been considered (lb130 and lb140 respectively) exercise below lb6 a month across two years.
Indeed, when you compare first-time buyer mortgages, you might find that the relationship between initial rate and upfront fee is of greater importance.
While the examples above have middling fees of under lb1,000, a few of the deals come with fees as high as lb2,000, which can eliminate the advantage of a minimal initial rate, and even any cashback incentive.
With that in mind, always look at the whole picture when comparing mortgages. And consider incentives such as cashback as a ‘nice to have’, rather than deal-breakers.
