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Should you be tempted by a £1,000 mortgage incentive?

Banks offer remortgage deals after base rate rise

Mortgage lenders are tempting homeowners with cashback of up to £1,000 when they remortgage. But are cashback mortgages just a gimmick or do they really offer a good deal?

With the Bank of England having increased the base rate earlier this month, many homeowners are sure to consider remortgaging, and banks are doing their best to lure them in with competitive deals.

Here, we take a closer look at cashback mortgages and offer advice on how you can find out the true cost of a home loan.

New deal offers £1,000 for remortgagers

Tesco Bank is offering customers between £250 and £1,000 cashback when they remortgage to one of its new range of products.

Alternatively, borrowers can opt out of the cashback and instead use Tesco’s standard conveyancing service for free – a feature that was previously offered as standard on its remortgaging deals.

Tesco’s two-year fix offers £1,000 cashback based on borrowing between 75% and 95% loan-to-value, while it’s five-year product at 60% to 75% loan-to-value comes with a £250 incentive.

 


Are buyers flocking to remortgage?

In times of economic uncertainty, and with a recent increase in the Bank of England’s base rate, homeowners need to be savvy to ensure they’re on the best mortgage deal.

In some cases, this means moving to a new fixed-rate mortgage before their current term ends and they are passed on to their bank’s standard variable rate (SVR).

This trend is highlighted by new data from the credit report agency Experian, which shows that the anticipation of a rise in the base rate resulted in more customers searching for fixed-rate deals.

In July, a third (33%) of people searching Experian were shopping for fixes, up from around a quarter in June (27%) and May (24%).

The popularity of moving deal is also reflected in new data released this week by UK Finance, which found remortgaging had risen by 8.4% year on year, with 37,400 transactions completed at an overall value of £6.8bn.

How do the Tesco deals compare?

Tesco is offering a market leading amount of cashback for remortgagers, but the interest rates are considerably higher than some of the other deals on the market.

The cheapest Tesco deal with £1,000 cashback is a two-year fix at up to 75% loan-to-value, which is priced at 2.44% (rising to an SVR currently set at 4.04%) and is available with no product fees. This means an overall cost for comparison (APRC) of 3.8%.*

Extending the search beyond cashback deals, Yorkshire Building Society offers the lowest overall initial rate on a two-year fixed remortgage at up to 75%, priced at 1.43% (SVR of 4.99%), though this does come with an arrangement fee of £1,495, resulting in a much higher overall APRC of 4.6%.**

How to compare mortgage costs

With cashback incentives and arrangement fees adding layers of complexity to mortgages, it can be very difficult to compare deals like-for-like.

In this instance, the Yorkshire deal offers a much lower interest rate, but its fees and higher SVR mean the Tesco deal is considerably cheaper over the term of the deal.

We know this because of the APRC, which shows the overall cost of a deal to help consumers compare.

Unfortunately, though, APRCs aren’t completely fallible either.

This is because many people remortgage at the end of their fixed period, which means they wouldn’t ever have to pay their lenders SVR.

This makes a significant difference in the example above, as the overall cost of Yorkshire’s deal is skewed by a high SVR (4.99%) compared with Tesco’s (4.04%).

Getting advice on your mortgage options

The difficulty of comparing mortgage deals is one of the reasons why it can be helpful to talk to a mortgage broker, who can look at all of the available deals and find you the best one for your circumstances.

If you’d like to discuss your options with an expert, you can get a free call back from Which Mortgage Advisers by filling out the form below.

*Assumed borrowing of £125,000 over 25 years, representative 3.8% APRC. Total amount payable: £194,100.71. Includes interest of £68,880.71, Valuation fee of £220, Booking fee of £0 and Administration fee of £0. Repayments: 25 monthly repayments of £557.00 at 2.44% (fixed), then 275 monthly repayments of £654.38 at 4.04% (variable).

**Assumed borrowing of £125,000 over 25 years, representative 4.6% APRC. Total amount payable: £210,223.91. Includes interest of £83,523.91, Valuation fee of £205, Booking fee of £0 and Administration fee of £1,495. Repayments: 23 monthly repayments of £495.82 at 1.43% (fixed), then 277 monthly repayments of £711.62 at 4.99% (variable).

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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