According to Moneyfacts data, no other lender offers cashback incentives above £1,000, so the new deal from Yorkshire BS is the most generous cashback mortgage offer on the market.
But can cashback save you money in the long run? Here, Which? looks at how the costs and incentives stack up.
Can a cashback mortgage save you money?
Cashback is an incentive offered by multiple lenders and is available on certain fixed, tracker and discount terms.
Of the 4,587 fixed-term deals on the market, 30% offer cashback and they tend to be more common at higher LTVs, in an attempt to entice cash-strapped first-time buyers.
The level of reward ranges from £150 cashback to Yorkshire's new offering of £2,000 – and can be typically spent however a borrower chooses.
As its name suggests, a cashback mortgage involves the lender paying a sum to the borrower after they sign an agreement to take out a home loan. Depending on the lender, the money could be paid into your account instantly or upon completion of the mortgage term.
However, interest rates tend to be higher on cashback mortgages. So, while a cash reward may look appealing, it might not be beneficial as you could face bigger monthly repayments as a result.
Find out more:How much difference does £2,000 cashback make?
To see if Yorkshire's cashback incentive really makes a difference, let's take a look at its projected cost versus the leading non-cashback five-year fix deals currently on the market at 90%.
We've based our calculations on a first-time buyer purchasing a home and borrowing £200,000 on a 90% LTV mortgage paid back over a 25-year period. Fees are paid upfront, rather than being added to the mortgage.
Yorkshire's new cashback product is the second cheapest over five years out of the top six deals we looked at.
It comes with a higher interest rate, but the additional £2,000 in the buyer's bank account – and the fact there are no additional set-up fees – means it costs less than competitors with lower interest rates.
The product with the lowest interest rate (Cumberland Building Society – 5.57%) is the cheapest deal overall. It doesn't have a cashback incentive but, overall, it's £280 less expensive than Yorkshire's deal that comes with the attractive cashback offer.
When comparing Yorkshire's lowest interest rate product (costing 5.72% with a £995 fee) with its new cashback product (5.89% no fee), the latter costs £20 extra a month. but proves to be £1,795 cheaper in the long run.
Find out more:How much difference do smaller cashback incentives make?
Yorkshire's new cashback offer is much higher than the cashback offered by other providers, with most deals offering £250 or £500.
These modest amounts don't tend to make a dramatic difference in the grand scheme of things, and most of the time you're likely to be better off going for a lower-interest product.
For example, when looking at deals for 85% LTV, the leading interest rate for a two-year fix is 6.08% from Cumberland Building Society. This comes with no upfront fees.
Accord Mortgages offers cashback of £250 at an interest rate of 6.39%, plus an additional £1,495 in fees. Meanwhile, Platform also offers £250 cashback, but with 6.41% interest and £1,999 in fees.
A buyer taking on a two-year 85% mortgage – repaid across a 25-year term – borrowing £187,000 would save money by not opting for these two cashback options.
After two years, a buyer would have paid £29,136 with Cumberland compared with £31,245 with Accord, and £31,797 with Platform.
source https://www.which.co.uk/news/article/yorkshire-building-society-launches-2000-cashback-mortgage-is-it-worth-it-aHvaj3S4LEPL