by Mark Johnston
Lenders offer incentives to take out mortgage products with them.
In today’s economy banks have now upped their game and have become increasingly competitive within the mortgage market.
Some of the nation’s biggest lenders have begun to offer different incentives in order to lure new customers to their products.
Experts say that the number of mortgages being offered with ‘freebies’ is significantly on the rise for the first time since the credit crunch and more so now that banks are fighting a mortgage war!
The fact is that everyone likes to be given a freebie and therefore on the face of it these deals appear to be an irresistible lure to most consumers when choosing a mortgage.
As a promotional tool, freebies have a positive impact for lenders, with this in mind many lenders use them to make their least popular and least competitive products look better.
Aaron Strutt, spokesman for mortgage broker Trinity Financial, said “borrowers need to be careful if they are thinking of taking one of these deals, there is often a catch”.
Many financial experts are warning that more often than not deals that offer incentives are far too good to be true and therefore borrowers will soon find that there is an ugly catch.
An example of a freebie being too good to be true comes from Tesco. Tesco bank launched a range of mortgages and as an added perk they promise to pay one Tesco clubcard loyalty point, worth about 10p, for every £4 spent on mortgage repayments. However over the course of a year, borrowers would earn 2,178 points, as they paid back a £150,000 loan at 3.19%, this is worth a mere £22 a year in points.
Santander, though its Abbey branch, will give £250 cash back and also throw in free valuation and legal services to customers who sign up for its 3 year fixed rate deal, although borrowers must have a 40% deposit.
Cash back mortgages are a way for borrowers to get a lump sum of money from their lender that is in addition to the amount of the original loan. It is usually paid on completion of the transaction.
However, most people should realise that lenders do not give away money for nothing and there has to be a reason behind any offer.
The disadvantage of a cash back mortgage is that they usually come with tie-ins which means there are penalty clauses associated with early redemption or a change in lender.
David Hollingworth, of mortgage brokerLondonand Country, says “it is worth looking at offers for free valuation and legal fees as it can be welcomed not to have to find the cash to cover these at a time when you are short of money”.
In conclusion, mortgage lending is a business that is built on money, percentage points and a return on investment, therefore any incentive offered has to fit in to that for the lender or they would not offer it!
Related stories to : lenders Offer Incentives to Take out Mortgage Products with them.