"Cashback is a clever way for lenders to manipulate sourcing"
Cashback on a mortgage is readily available across the industry – but is it an effective sales tactic? Do customers really want it, or are they simply searching for a better rate?
Mortgage Introducer gathered thoughts from across the industry to assess whether the value of cashback holds any significant importance to consumers, or if it primarily benefits lenders.
Is cashback simply lender manipulation?
Benjamin Blyth (pictured), director at Houz Mortgages, said cashback is a clever way for lenders to manipulate themselves to the top of sourcing.
“This reduces the true cost over the initial period to make themselves that little bit more competitive than the next option,” he said.
Blyth added however, that this is just one half of the ‘trick’, with the other being quoting legal fees as low as they can get away with on an illustration.
“It is amazing how many lenders stick ‘£150’ in as a standard legal cost, when in reality it could be a couple of thousand,” Blyth said.
From a client perspective, Blyth said cashback offers a small boost as it enables a customer to replenish some of their costs. The most meaningful amount, Blyth said, is £500 upwards, as between £150 and £250 nominal figures do not really begin to touch the sides.
“However, I have never once had a client insist cashback be a feature of a mortgage, so it is simply a nicety,” he said.
Mike Staton, meanwhile, director at Staton Mortgages, said the importance of cashback depends on the size of the mortgage.
“A £500 cashback is going to make little difference to the overall cost of a £400,000 mortgage; however, at the cheaper end of the market, an £80,000 mortgage with a cashback of £500 is likely to place at the top of sourcing,” Staton said.
Due to most cashback incentives being paid on or after completion, Staton said it should have little bearing on clients’ decisions.
“I have never once had a client who has chosen a mortgage with cashback if it was not the cheapest mortgage on the market,” he added.
Choosing incentives
Scott Taylor-Barr, financial adviser at Barnsdale Financial Management, said it is very rare for a client to state any form of cashback is a pre-requisite for their mortgage.
“However, lots of lenders do offer small cashback amounts on their deals; anything from £150 to sometimes £1,000 - but typically £250 or £500,” he said.
When assessing the best overall deal for a client these small incentives; cashback, free valuations and legal costs being paid, combined with the rate and set-up fees, Taylor-Barr said, can make all the difference as to which deal is the most suitable for a client.
In the majority of cases, for average-sized mortgages, Taylor-Barr said it is not the lowest interest rate deal that is best for the client, as the incentives available on a higher rate deal may actually end up making it the overall lower cost option over the initial rate period.
Joe Stallard, director and adviser at House and Holiday Home Mortgages, meanwhile, finds cashback is not always a main motivator. Primarily, Stallard said it is rates and fees they are interested in, along with other eligibility criteria.
“These are the things that tend to have a bigger impact on monthly payments over the long term,” he said.
However, Stallard said if there is a cashback mortgage offer with a competitive interest rate and fees, it can be a good way to get extra money for moving costs or other expenses.
“In terms of choosing between cashback and free legals, most people prefer cashback; they have then got the freedom to choose the solicitor they want to work with,” Stallard said.
Free legals, on the other hand, Stallard said, often come with restrictions on which solicitors you can use.
“Ultimately, the best way to decide whether a cashback mortgage is right for a customer is to help them compare different deals and factor in all of the costs involved; looking into any deals means looking at the amount of cashback too - it varies depending on the lender and the mortgage product,” he added.
Have you seen high demand for cashback incentives on mortgage deals? Let us know in the comment section below.
