Mortgage Incentives

by Mark Johnston

It has always been quite common for mortgage lenders to offer benefits in order to attract new customer, although long gone are the days when lenders gave away televisions or Rover cars.

Adrian Anderson, of Anderson Harris a mortgage broker, has noted that “lenders are increasingly likely to now offer more subtle benefits, such as cashbacks, vouchers, fee free deals, free valuations or free legal fees”.

The most common deals on offer are:

–          Cashback: borrowers are effectively paid a cash lump sum when they take out a mortgage with the lender.

–          Fees: these deals most often apply to legal, arrangement and valuation charges.

–          Insurance: some deals offer discounted or a period of free cover.

According to Nigel Bedford, of, “there are currently 29 lenders offering a free valuation to purchasers on various mortgage deals.

Aaron Strutt, of Trinity Financial said “many lenders will pay for the property valuation and legal fees when switching lenders”.

Recently Halifax launched a new deal that will see the bank refund a borrower’s valuation costs if their property purchase falls through. However, the guarantee will only refund costs where the failure to purchase is not the borrowers fault. In addition the guarantee only applies to the first purchase that falls through and the borrower still has to complete on an alternative property with aHalifaxmortgage in order to gain the refund.

Also in a move to attract more first time buyers theHalifaxhas also announced plans that they will pay 50% of their stamp duty.

The Co-operative has launched a fee free deal for 90% loan to value (LTV) ratio.

Many mortgage brokers warn however that just because lenders offer financial incentives it does not make their loans the best value. Borrowers should not be persuaded to take out a mortgage just because there is an incentive.

It seems though that banks are frequently bashed for their gimmicky products, with thousands of column inches devoted to these supposedly underhand tactics every month.

This problem with so called financial gimmicks has reached such a level that a new breed of banking has emerged, offering products with ‘no strings attached’.

Although some experts wonder if we are really better off without these gimmicks?

Therefore these experts believe that banking gimmicks should only be condemned if they lead to mis-selling, illegality or excess confusion over financial products.

Ray Boulger, of broker John Charcol suggested that not all incentive deals are poor value and adds that “Coventrybuilding society has a competitive 5 year fixed rate of 5.35% for first time buyers with a 10% deposit that comes with the added bonus of a £500 IKEA gift card”.

In conclusion all things being equal borrowers might find that incentives help them choose between various lenders, but it is important to look whether what’s on offer is actually worth it and how the deal behind it looks as an incentive can sometimes hide a less than ideal interest rate.


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