A HIGH Street lender has launched a new mortgage deal offering buyers a market-leading £5,000 cashback ahead of next month’s stamp duty increase.
Nottingham Building Society has launched two new residential cashback products, which it says will offer assistance to homebuyers, including first-time buyers.
Mortgage lenders have launched new products to help home buyers with additional costs[/caption]
The new five-year, fixed-rate products are available to those buying properties worth more than £250,000.
The first offers a 5.28% initial interest rate on a 75% loan-to-value (LTV) with £2,500 cashback.
The second offers an interest rate of 6.15%, on a 90% LTV with £5,000 cashback.
The LTV is the ratio of how much you are borrowing compared to the value of your property.
For example, for a property valued at £250,000 you’d have 60% LTV if you had a £100,000 deposit and were borrowing £150,000.
The products have been launched ahead of April’s stamp duty rise.
Before the rise, first-time buyers did not have to pay stamp duty on the first £450,000 of a property purchase.
But from April 1 the threshold beyond which they must pay the tax will plummet to £300,000.
The change could add thousands of pounds to the total cost of buying a home.
Regular buyers (who are not purchasing their first home) will also see the stamp duty threshold fall from £250,000 to £125,000.
The lowered threshold means that those buying a property worth more than £250,000 will pay an additional £2,500 in stamp duty.
Matt Kingston, sales director at Nottingham Building Society, said: “Our new cashback mortgage products are designed to provide practical financial support at a time when it’s needed most.
“By offering up to £5,000 in cashback, we aim to help ease the immediate financial impact of these changes and support buyers in securing a home in an increasingly expensive market.”
What do the experts say?
Rachel Springall of Moneyfactscompare.co.uk said cashback deals can be a “great choice” for those worried about upfront fees but urged buyers to always check the overall cost of a mortgage.
The finance expert explained: “Across the fixed mortgage market, less than a third of deals offer cashback, so it’s positive to see some lenders stand out by offering a lucrative incentive for borrowers.
“Lenders could also add upfront fees to the mortgage advance, so it’s wise for borrowers to seek advice to navigate all the options available to them before they commit.
“Outside of headline-grabbing low rates, borrowers need to check the overall cost of any mortgage, which includes any fees or cost-saving incentives.
“The best deal depends on someone’s circumstances and how much they need to borrow; someone with a larger debt would typically chase a lower rate, whereas those looking to avoid upfront costs would consider fee-free deals and incentives.
“The lowest fixed mortgages on the market typically charge upfront fees of around £1,000, or even up to £2,000, so a mortgage with a slightly higher initial fixed rate and lower product fee could be a better choice.”
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.
Mark Harris, chief executive of mortgage broker SPF Private Clients, also urged buyers to be cautious.
He added: “While cashback may be tempting, you should not let this sway you when choosing a mortgage. The mortgage rate charged on such deals will be higher than on non-cash back mortgages to cover the cost of the ‘freebie’ so you need to work out the total cost of the loan when comparing it with other deals.”
SPF pointed out that Santander has an equivalent product to Nottingham Building Society’s 90% LTV five-year fixed mortgage, with an interest rate of 4.59%.
The Santander product comes with a free valuation, £250 cashback and a product fee of £999.
While the cashback is lower on the Santander product, SPF said borrowers would be around £12,000 better off selecting this mortgage over the whole five-year term.
Nicholas Mendes, head of marketing at John Charcol, said the launch of the new cashback products reflected the increased level of competition in the property market.
He explained: “While some buyers are drawn to perks such as free valuations or legal services, others prioritise upfront cash incentives.
“However, these offers aren’t without trade-offs, as lenders typically offset the cost by increasing interest rates or adding product fees.
“For the wider market, cashback mortgages can make homeownership more accessible by reducing the immediate financial burden on buyers.
“However, if higher interest rates make borrowing more expensive in the long run, they could also contribute to affordability challenges, particularly if rates continue to rise.
“When choosing a mortgage, it’s vital to look beyond the initial incentive and consider the long-term financial implications.
“Cashback mortgages can provide a useful cash boost, but the higher interest rates often associated with them may make them more expensive overall.
“Buyers should carefully compare deals, factoring in all costs and conditions, to ensure they choose the best mortgage for their circumstances. Consulting a mortgage adviser can help make sense of the options available and ensure the right decision is made.”
Increased competition in the mortgage market has also seen sub-4% products return in recent weeks.
At the start of the month buyers were urged to act quickly as new mortgage offers were unveiled.
With the Stamp Duty change fast approaching house prices have begun to fall and our interactive map will allow you to see what’s happened in your hometown.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
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