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Cashback mortgages

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What is a cashback mortgage?

It’s a type of mortgage that rewards you with a sum of cash when you take it out.

There are a few different types of cashback mortgage, some are aimed at first-time buyers and others are targeted at those looking to remortgage.

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How does a cashback mortgage work?

The cashback you receive will be a lump sum. This could be a set amount, a percentage of what you’re borrowing or even an amount equal to one of your monthly payments, up to a limit.

You’ll receive the cashback when you complete on the mortgage, or after you’ve made your first monthly payment. The money will be paid directly into your bank account or sent to your solicitor.

This money can then be used for whatever you want, it doesn’t have to be spent on a house move, but it can certainly come in handy for it.

Should I get a cashback mortgage?

The prospect of receiving ‘free money’ when you’re taking out a mortgage can be attractive.

But before making any decisions, be sure to carefully compare a cashback mortgage against the other options available.

While they may seem like a great deal at first glance, they often charge a higher interest rate than other mortgages, so you could end up with higher monthly payments and it may cost you more overall.

As well as considering interest rates, look for costs like legal and valuation fees, as well as the length of the initial deal, to calculate the overall amount you’ll repay on a cashback mortgage.

You can use the annual percentage rate of charge (APRC) to compare the cost of mortgages over their whole term. All providers must show this.

There may also be early repayment and overpayment charges that apply, so check if that’s the case, too.

Conditions for cashback mortgages

As well as the usual affordability criteria required for getting a mortgage, there may be other conditions you’ll need to meet to qualify for a cashback mortgage.

For example, you’ll often need to hold a current account with the lender or be a first-time buyer.

The sum you borrow might also need to be over a certain amount.

Some lenders now also offer cashback mortgages for people who purchase a property with a high-energy efficiency rating.

Advantages of a cashback mortgage

The benefits of taking out a cashback mortgage are:

  • You’ll receive a lump sum which you can spend on what you want
  • The money can help with cash flow, moving costs and things like furnishing your new home
  • Some cashback mortgages come with extra benefits like a refund on product fees, stamp duty or valuation fees, for example

Disadvantages of a cashback mortgage

You may want to think about:

  • They often come with higher interest rates than other mortgages, meaning your monthly payments and cost of the mortgage overall will be more expensive
  • Look out for higher mortgage fees on a cashback mortgage
  • Early repayment penalties might be higher, which could wipe out any cashback you receive

Frequently asked questions

You’ll usually get the cashback on completion or when your first monthly payment has been made.

The cashback is payable per application, not per person. So, it will only be applied once.

You’ll need to check the lender’s criteria. For example, if you don’t bank with the lender then you may not be eligible for the cashback.

Some cashback mortgages come with higher interest rates than other mortgages, so there could be better deals for you out there.

You’ll need to compare the APRC and consider any possible fees and charges.

It depends on the lender, but you may find that some cashback mortgages have higher product, arrangement, valuation and legal fees than standard mortgages, which can really eat into the cash sum you receive. However, some may waive some or all these fees, so check each offer carefully.

Also, make sure you know how much you’d be charged for early repayments or overpayments.

Yes, you can spend the money on anything you like - moving costs, new furniture, or you can even put the money towards your mortgage payments.

Yes, some lenders offer cashback as an incentive to switch from your current deal when it ends. Don’t be swayed by the cashback offer without comparing it against other remortgage deals, which could be better value in the long run.

Some current accounts pay cashback on your monthly mortgage repayments, as long as your mortgage and current account is with the same provider.

You usually must pay in a minimum amount per month to qualify for a cashback current account, and some come with monthly or annual fees.

The prospect of having a cash lump sum as a first-time buyer can be very tempting, especially when you need to stump up money for all sorts of things, like furniture and furnishings, for your first home.

But do compare with other first-time buyer deals as they could be better value in the long run. It depends how valuable you’d find the cash lump sum at the time of taking out your mortgage.

It depends on the lender, but usually this will be a lump sum when your mortgage commences..

You can also get a cashback mortgage that pays out a small percentage of the amount you borrow.

How much can I borrow for a mortgage?

Your mortgage lender will look at your affordability and decide how much you can borrow. It’ll base this decision on:

  • Your salary. Or a combination of your salaries if you’re applying for a joint mortgage
  • Any additional income you have, like bonuses or tax credits
  • The size of your deposit. You’ll usually need at least 5%-10% of the total loan value
  • Any financial outgoings you have – bills, credit cards or insurance payments
  • Your credit history. A good credit history of meeting repayments will give you access to better deals

To get an estimate of your how much you could borrow and your repayments, try our mortgage calculator.

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