Are cashback mortgages the best option for FTBs?
A first-time buyer typically faces a lot of upfront costs, some of which can be unexpected and daunting for someone who has never bought a home before, so it can be handy to have some spare cash available to cover these extra necessities
The latest research from Yorkshire Building Society has suggested that mortgage products that offer cashback are most likely to save first-time buyers money in the long term.
According to the lender, cashback mortgages can work out to be more cost-effective overall, despite often carrying higher interest rates.
A first-time buyer with a 5% deposit who wants to borrow £171,000 would have monthly repayments of £800.69 if they opted for Yorkshire’s 3.84% two-year fixed rate mortgage. With this mortgage they would receive £250 cashback and pay no upfront product or standard valuation fees, so would pay a total of £18,966.46 over the 24-month fixed rate period.
Alternatively, a new homeowner borrowing the same amount and opting for Yorkshire’s lower 3.49% two-year fixed rate mortgage would pay just £766.91 a month, but the additional £995 product fee and £205 valuation fee would mean they would pay a total of £19,605.89 at the end of the fixed rate period.
The cashback mortgage would therefore save the first-time buyer £639.43 over the two years, including getting an initial £250 in their pocket once their mortgage completes.
However, the lower rate mortgage is cheaper for those who need a larger loan. First-time buyers borrowing £332,500 or more at 95% LTV, would pay less overall on the lower rate mortgage.
Charles Mungroo, Product Manager at Yorkshire Building Society, said: “Some first-time buyers are happy to make sacrifices on their interest rate to get access to extra funds which they can spend on their new home, and our figures show that this can sometimes be the savvy choice in the long run.
We know that while buying your first home is extremely exciting it can also be hard on bank balances. We understand all of our borrowers are individuals and want to help them in the way which is most appropriate for them.
A first-time buyer typically faces a lot of upfront costs, some of which can be unexpected and daunting for someone who has never bought a home before, so it can be handy to have some spare cash available to cover these extra necessities.
That’s why we offer a range of high loan-to-value mortgage products designed to get people onto the property ladder, which include a choice of no-upfront fees, cashback on completion and free standard valuation options.”