Get £4,500 cashback with this mortgage

by John Fitzsimons on 10 August 2010  |  4 comments
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Buying a property can be pretty expensive, but this mortgage offers more than just a helping hand.

The discovery of cashback has completely changed the way I shop. Whenever I’m going to spend money, whether it’s on food, clothes, holidays or Valentine’s Day presents, I always head straight to sites such as Quidco and GreasyPalm to see how much cashback I can get for my spending.

But it's not just shopping that offers cashback - you can also get money back based on your choice of financial product. For example, certain current accounts, such as the Santander Preferred In-Credit Rate or the First Direct 1st account, will pay you £100 just for taking out the current account.

In fact, you can even get cashback on your mortgage!

An expensive business

Taking those first steps onto the property ladder are far from cheap. Sure, there are things you know about from the start that will cost a fair bit, such as saving for ages to get a deposit together, and then forking out an average of £1,000 as a product fee on your mortgage.

But there are loads of additional costs too that you may not have accounted for in your planning but which soon start to add up. Things like paying for the valuation of the property, and the many legal fees that took me a little by surprise when I bought my house.

And that’s even before you think about buying furniture or paying for the decorating that you are bound to want, in order to stamp your own identity on the property and really make it feel like home.

Therefore, finding a way to get a bit of extra cash to help towards those costs can be mightily tempting.

3% cashback!

There have long been mortgages that offer a tempting little chunk of cash to help homebuyers out. However, one new mortgage goes a step further, offering some serious money to borrowers who sign up for it.

Leeds Building Society has launched a new cashback mortgage paying a frankly incredible 3% in cashback. That’s 3% of the size of the loan – so on a £150,000 mortgage, that would be a cashback payment of an unbelievable £4,500.

Just think of the things you can do with £4,500 with a new property!

The catch

Inevitably, there is something of a catch involved with the Leeds cashback mortgage. Quite simply, it’s not very good.

On the plus side, it’s available to borrowers with a 20% deposit, and the product fee is very reasonable at £199.

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In addition, the mortgage is a variable product, far from a terrible bet in the current climate, with all of the experts forecasting that bank base rate will stay low for a long time to come.

Sadly, the rate is the lender’s Standard Variable Rate, which stands at 5.69% - hardly a sexy rate. And the trouble with going onto a Standard Variable Rate is that the lender can raise it at any time – it doesn’t need to wait for bank base rate to start increasing.

What’s more, should you want to leave the mortgage in the next three years, perhaps because the rate has increased and the repayments are starting to hurt, you would have to repay that cashback.

The cashback argument

Of course, that’s sort of the point with this product. You are sacrificing getting a fantastic rate in order to guarantee yourself a substantial pot of cash to use however you see fit.

Of course you could get a far better rate elsewhere – my own favourite would be the lifetime tracker from First Direct, available with a 15% deposit, £99 fee and boasting a rate which tracks base rate plus 3.49% for the life of the mortgage. You can also get out of the mortgage at any time and only have to pay £149.

But while rate is great with the First Direct deal, you don’t get that stack of cash to play with up front.

However, there is not such a significant sacrifice to be made with other cashback mortgages. The cashback they provide is nowhere near as hefty as that on offer from Leeds, but equally the rates are not quite as far off the market-leaders.

Personally, I’d always prefer to get a decent rate and save up for the stuff I need in my home, but if you need that helping hand straight away, you could do worse than go for one of these deals.

15 cracking cashback mortgages

More: House prices drop to 2006 levels | The top 5 rotten property scams!

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.