A guide to cashback, self-certification and graduate mortgages

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People have a different needs and requirements when it comes to finding a best-fit mortgage. Sometimes the more traditional fixed rate or Standard variable rate mortgages can be substituted or supplemented with the introduction of other types of products.

Cashback Mortgages

Buying a home, especially for first-time buyers can be financially pressurised. Extra cash, when you need it most, can be a particularly useful advantage of cash back mortgages for example to cover a mortgage valuation or contribute to legal costs.

As an incentive, lenders offer a lump sum of cash either once a mortgage has been taken out or upon the completion of the mortgage. Amounts vary depending upon lenders, schemes and the size of the loan from a flat fee to a percentage of the loan.

Cash back is normally offered as a package of benefits e.g. linked with a discount, but pure cash back products are not uncommon, sometimes stretching to 5 or even 6% of the loan value.

Other forms of cash back mortgage include the product being offered alongside another type of loan such as a fixed-rate mortgage or a discount rate mortgage where it’s likely to be substantially smaller.

Like most loans of this nature, early repayment penalties can be expensive, and may apply for a long period (5 to 7 years where sizeable cash back has been paid). Cash back mortgages also tend to attract higher application fees and higher interest rates.

Self Certification Mortgages

These are designed mainly for those who have a sizeable deposit but are unable to show their true earnings, in most cases the self-employed or any person who has an irregular income. For example, people with seasonal jobs like tourism or those whose income is largely commission based.

When applying for a mortgage one is normally asked to declare you’re earning and to provide three years’ accounts. Lenders will want to see net profits however often accounts are produced to save tax. This contradiction has lead over the last ten years to the introduction of self-certified mortgages.

Lenders will often require a large deposit in excess of 70 per cent of the value of the property, although these figures do vary. Interest rates are slightly higher to represent the risk posed by the loan.

Graduate Mortgages

Graduate mortgages are a relatively new product on the mortgage market.

They are typically available to people who have been employed for over a year and who have graduated within the last seven years. Often, the loans include lending to cover costs associated with taking out a mortgage and buying a house, such as legal fees and stamp duty.

Most lenders that promote graduate mortgages offer interest only, discounted rate and tracker options. Interest only mortgages are particularly attractive to recent graduates because monthly repayments are considerably lower than for other types of mortgages.

Income multiples can be up to four times the borrower’s salary, although some mortgage lenders will even go above this. For those graduates who qualify as professional, mortgages from some suppliers such as Natwest will offer enhanced income multiples.

Discounted rates are very useful for recent graduates as this will often mean that a lower rate is offered for a set period, for example, 2 to 5 years. During this time, there are normally penalties if the mortgage is redeemed during the discount period.

For a good overview of the current mortgage products available on the market it’s worth working out what you can afford properly.

It is worth surveying a number of financial providers in order to claim the best deal. It means that you are clued-in to the variety of financial products and policies available, as you make the transition from rooky student to savvy graduate.

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