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 Money
Page > Mortgages
> Cash Back Mortgage - UK Guide
 In a
nutshell
A cash back mortgage gives you a cash
payment when you take out your mortgage product. This will
either be a percentage of the money you borrow or a
special-offer fixed sum.
Best
Mortgage For
Generally first-time buyers. However,
a cash back deal can be offered to other mortgage buyers
either as an initial incentive or as a regular part of a
mortgage deal.
Mortgage Type
When
you take out a cash back offer, you'll most probably tie
yourself into a pre-specified mortgage deal with your lender -
usually for a few years. These deals can be for standard
variable or tracker rates or for special deals such as fixed
and capped rates and discounted offers. Generally, if your
cash back is tied into another special offer deal you'll be
offered a smaller sum or lower percentage as cash back. Some
lenders are now moving cash back deals into long-term products
- so, you can, for example, take out a life tracker mortgage
that gives you a cash back payment based on a percentage of
your loan value every two years.
Typical
Amount to borrow
Most lenders will offer standard
borrowing amounts for this type of mortgage of between 3-4
times your salary for a single application and 2.5-3 times
your salary for a couple. If you need something a bit more
flexible, however, then you'll probably be able to find it.
So, you can get cash back deals for 100% mortgages and some
lenders will let you borrow more than 100% of your property
value.
Deposit
You can get
cash back deals for 100% mortgages and standard deposits vary
from 5%+. You may find that you get better deals for higher
deposits.
Advantages
Cash back
deals often suit first time buyers best - this is a time when
money is traditionally quite tight and the cash can be used to
cover other property expenses. So, you can, for example, fit
yourself out in furniture or do up your property before you
move in. Here, your cash back can simply save you quite a lot
of money. The new long-term cash back deals can often be a
good solution too. Here, you'll be given a cash back sum every
few years based on the value of your mortgage - you can take
the cash or offset it against your loan. But, there is a price
to pay here and you'll need to investigate how good the rates
are first.
What to
look out for
A cash back mortgage deal will give a
short-term solution to a cash-flow problem. It may, however,
tie you into a mortgage that isn't as good as you could have
got without the cash back offer and you may find yourself tied
in for a good few years. So, you may be immediately paying
standard variable rates, for example, rather than being able
to benefit in the medium term from a special rate deal. You'll
need to weigh up the pros and cons of taking the cash back
against what you might lose by taking it. You can arrange
special deals such as capped/fixed rates or discounted periods
with a cash back option but the chances are you won't get as
big a cash payout this way. Lenders may also charge you
redemption fees if you change your mind about the deal and
some may charge mortgage indemnity fees (MIGs) if you borrow
over a certain percentage of the value of your property. MIG
charges vary - some lenders won't charge them and others have
different rates (i.e. borrowings of 90% or 95%). However, a
cash back deal can sometimes be used as just one incentive for
first time buyers. So, it may come as part of an overall
package with special rate deals and lenders may waive
arrangement fees and contribute to legal costs.
Alternatives
If a
quick cash injection is important to you then this is your
best choice. As an alternative, you might want to make sure
that you shop around for the best overall deal that will save
you money in other ways - i.e. by using fixed rates, payment
holidays, no arrangement fees and/or the payment of legal fees
etc.
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