The mortgage market is more competitive than ever with record-low rates and a variety of gimmicks and bribes on offer to lure customers in.
Lloyds Bank is the latest lender to offer an eye-catching deal: a month’s mortgage payment refunded up to the value of £1,000.
We’ve done the sums to see if the offer can really save you money.
What’s on offer?
The cashback offer will be available on all home-mover mortgages from Lloyds Bank, up to 95% loan to value, including the bank’s Help to Buy mortgage guarantee scheme products.
However it’s not available to first-time buyers and several other types of customer including remortgagers, those buying a shared equity property (including using a Help to Buy equity loan), landlords, or anyone buying shared ownership property (i.e. with a housing association).
For those eligible, the payment will be made into the customer’s bank account within 60 days of the mortgage completing. The deal runs from now until 31st May 2015 but can be withdrawn at any time.
Is the deal any good?
As always, it’s important to do the sums when comparing mortgage deals and take into account the rate, fees and any cashback or freebies.
Lloyds isn’t offering the cheapest mortgages on the market at the moment, even once a month’s payment refund is taken into account.
For example, Yorkshire Building Society is offering a two-year fixed rate at 1.18% at 65% loan-to-value (LTV) and a £1,369 fee. On a £150,000 mortgage borrowers would pay a total of £15,232 over two years.
[SPOTLIGHT]A comparable deal from Lloyds would be its two-year fixed rate at 1.89% and a £1,995 fee, available up to 60% LTV.
Over two years a borrower with a £150,000 mortgage would pay a total of £17,061.48 which decreases to £16,433.71 once a month’s mortgage payment of £627.77 is refunded.
This is about £1,202 more than they would pay on Yorkshire’s 1.18% deal.
Lloyds’ offer doesn’t stack up on five-year deals either. It’s best five-year fixed rate offering is a 3.19% rate with a £995 fee. Yorkshire Building Society is offering a five-year fix at 2.24% with a £845 fee.
Over five years borrowers with a £150,000 home loan would pay a total of £43,842 with Lloyds but just £40,052 with Yorkshire. That's £3,790 less.
The examples above show how important it is not to be lured in by mortgage lenders’ gimmicks and bribes – they are rarely as good as they sound.
This isn’t the first-time Lloyds has tried to tempt borrowers with an impressing sounding freebie. Just six months ago it was offering a free iPad Mini with its mortgages. However, borrowers would have been better off opting for the cheapest mortgage on the market and buying the iPad separately.
TSB came up with its own gimmick, offering to pay borrowers’ Council Tax bills for a year, an offer worth up to £2,500. However, as we explained, borrowers would have been better off simply finding the best mortgage deal available rather than falling for this gimmick.
All of these offers are just cashback deals by another name. Occasionally these deals will be worth opting for, but not often, so make sure you take all the elements of a mortgage into account before making a choice.