- Buyers could get thousands in cashback, but will pay more over mortgage term
A building society has launched new mortgage deals with hefty cashback, aimed at buyers who are preparing to the burden of April’s stamp duty hike.
The Nottingham Building Society has launched two new fixed rates with a whopping £2,500 and £5,000 cashback, for those buying properties worth £250,000 or more.
The £2,500 cashback mortgage is for buyers who have a 25 per cent deposit or equity from their existing home, and has an interest rate of 5.28 per cent.
The £5,000 cashback mortgage is for those with a 10 per cent deposit or equity, and has an interest rate of 6.15 per cent.
Both deals are fixed for five years and come with no arrangement fees.
Normally, cashback mortgages are used by lenders to draw in customers, or reward them for having things like an energy efficient home.
Count the cost: Mortgage cashback can be useful during the expensive settling-in period, but deals which offer large amounts of money can mean higher mortgage payments overall
They usually range between a few hundred pounds and about £1,000.
Under the stamp duty changes which will happen on 1 April, first-time buyers could pay up to £5,000 more on their home purchase than they would currently, and home movers could pay £2,500 more.
This is because the house price thresholds at which someone starts to pay the tax are being reduced, back to the level they were at before the Conservative government made temporary changes in 2022.
However, there are a few things buyers must be aware of before signing up.
Is it a good deal?
First, the rates are substantially higher than comparable mortgage deals that don’t offer cashback, or not as much.
According to Moneyfacts, the average five-year fixed mortgage has a rate of 5.19 per cent.
On a £300,000 home purchased with a 25 per cent deposit on a 30-year term, the repayments on that average rate would be £1,234.11 per month.
However, many buyers are securing rates lower than that average.
For those with a 25 per cent deposit, the lowest rate available is 4.19 per cent with Barclays, though it comes with an £899 arrangement fee.
The monthly cost with the fee paid upfront would be £1,098.98 per month.
On The Nottingham’s 5.28 per cent rate they would be £1,246.64 per month, and on the 6.19 per cent rate, they would be £1,370.76 per month.
Between Nottingham’s 5.28 per cent rate and the current best buy, that is an additional £147.66 per month.
Based on 60 monthly payments, that is an additional £8,859.60 – wiping out the cashback.
However, for those who would find a cash lump sum useful as soon as they move in, perhaps first-time buyers who don’t have any furniture or appliances, it could still be worth considering.
In addition, mortgage cashback is paid after the property sale completes, while stamp duty is usually paid to the buyer’s solicitor at or before completion.
Therefore, buyers won’t be able to use the cashback to pay the stamp duty bill directly.
However, it could help with other upfront costs that they may be struggling to meet because of the additional stamp duty burden.
Five-year fixed rates may also not be suitable for some buyers, for example if they think they will want to move home again during that time, or if they believe that mortgage rates will decrease in the next two years and would rather take a shorter fix.
Matt Kingston, sales director at Nottingham Building Society, said the stamp duty changes were ‘set to significantly increase the upfront costs of buying a home, making homeownership even more challenging – particularly for first-time buyers who are already facing affordability pressures.’
The two cashback mortgages are open to both first-time buyers and home movers.
Kingston added: ‘We believe these changes should not deter people from achieving their homeownership ambitions. 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.’
Earlier this month, Moneyfacts revealed the proportion of the lenders offering cashback has dropped by 9 per cent since March 2020.