Post Office offer cashback on mortgages

post box

THE Post Office have announced a selection of mortgages combining what they say are "market leading rates" with sweeteners such as free valuations and up to £400 in cash back.

First time buyers are being offered the choice of three fixed rate Help To Buy mortgages, with terms ranging from two to five years.

Alternatively, those who've managed to save more towards a deposit - from 10% to 25% - may be interested in the Post Office's other fixed rate deals, offered with similar length terms.

The Help To Buy mortgages aren't the best available at the time of writing - but two of these other fixed rate deals are, for now at least.

Help to Buy

Also included in the deals available to those eligible for the Government's Help To Buy scheme - explained in more detail here - are a free standard valuation and £400 cash back on completion, and there's no arrangement fee.

Each of the three options is a fixed rate deal, with rates and terms as follows:

Mortgage Term Interest rate
Two year fixed
Fee Assisted plus Cash back
Two years 3.74% fixed (until 31/07/2018)
Three year fixed
Fee Assisted plus Cash back
Three years 4.19% fixed (until 31/07/2019)
Five year fixed
Fee Assisted plus Cash back
Five years 4.48% fixed (until 31/07/2018)

After the fixed rate term ends, all three revert to a rate set at 3.99% above the Bank of England base rate - so at present the Post Office are quoting a rate of 4.49% variable.

However, even when we take into account the lack of arrangement fee, the free standard valuation and £400 cash back, none of these is the best rate available over the set term.

A two-year fix from Hanley Economic Building Society, for example, has a rate of 3.65% - and although it also comes with an application fee of £250, it offers £250 cash back on completion.

Restricted help

Buying a home
How much does it cost?
The interest only black hole
Stamp duty: our guide

Like other Help to Buy products, these mortgages are available on a repayment only basis - anyone looking for an interest only, offset, or guarantor mortgage is out of luck.

As Help To Buy is designed to help get people onto the housing ladder, applicants must intend to live in the property; they can't buy it then let it out.

Moreover, anyone who's owned a property anywhere else in the world, or part of a property here or abroad - and joint applicants where one party has previously bought property - are excluded.

The type of property the Post Office allow applicants to buy is also restricted, with newly built houses and studio flats among those excluded.

Other criteria include a minimum household income of £20,000 and the ability to provide "evidence of means to repay" if the mortgage will extend into the borrower's retirement - which the Post Office assume to be 70.

Other lenders are becoming more lenient in this respect, raising their mortgage age limits to make it easier for increasingly longer lived and older borrowers to buy property.

Larger deposits

For those who aren't eligible for the Help To Buy deals, The Post Office's other mortgages require a minimum deposit of at least 10% and up to 25%.

The fixed deals come with rates of between 1.33% for a two-year fix (based on a 25% deposit), to 2.67% for a three-year fixed rate (based on a 10% deposit), both of which are the best available at the time of writing.

However, the Post Office have interspersed these headline "market leading" products with others that aren't so impressive. We'll look at them by increasing size of required deposit:

Mortgage Interest rate Fee
90% LTV
Three year fixed
Fee Assisted
2.67% fixed (until 31/07/2019) £995
(£300 cash back on completion)

This new three-year fixed 90% LTV mortgage - which requires a 10% deposit - is the best of the three 90% deals they can offer; the older two- and five-year fixed deals have since been beaten by cheaper deals from other providers.

Similarly, it's the two newest versions of the 20% deposit mortgage that offer the best deals:

Mortgage Interest rate Fee
80% LTV
Three year fixed
1.98% fixed (until 31/07/2019) £995
80% LTV
Five year fixed
2.43% fixed (until 31/07/2021) £1,495

For those who have a 25% deposit, only the two-year and five-year fixes offer the best value right now, with rates of 1.33% and 2.23% respectively.

Mortgage Interest rate Fee
75% LTV
Two year fixed
1.33% fixed (until 31/07/2018) £1,995
75% LTV
Three year fixed
1.93% fixed (until 31/07/2019) £1,495
(free standard valuation and legal fees)
75% LTV
Five year fixed
2.23% fixed (until 31/07/2021) £1,495

Whether these remain the best available for very long however is questionable.

Race to the bottom

The latest Post Office mortgages are a reflection of a more borrower-friendly market - largely the result of the Bank of England's indication that their base rate could be further reduced rather than increased as expected.

In the past month, HSBC have launched a two-year fixed-rate mortgage at 1.16% with a £1,499 fee, while Yorkshire Building Society announced a 1.14% deal with a £1,345 fee - although both require a larger deposit than the deals outlined above, asking borrowers to have at least 35% saved.

David Hollingworth, from mortgage broker London & Country, says that fierce competition between lenders means borrowers are becoming "spoilt for choice" and that we "can't rule out below 1% mortgages".

However, even though we currently appear to be in a lull - possibly the aftermath of the buy-to-let stampede - house prices are expected to continue to rise, so it might not pay to wait too long before buying.

Indeed, house prices across the UK are predicted to double in the next decade, during which time it's highly likely that the Bank of England base rate will increase and make borrowing much more costly.

Please read our full disclaimer for important information that relates to the service we provide and your use of this site.

We aim to provide free reviews and comparisons of consumer products and to keep our editorial content as objective as possible. To keep the site free, we are paid by some providers when new customers take products after they've clicked on our links. We don't allow our editorial content to be affected by those links, however we may not include all of the products available in the market. Finally, we do not submit or process any applications for any products or services and we cannot guarantee that any product or service listed on this website will be available to you. Credit providers make the final decision on whether an application for credit will be accepted.

If you would like to get in touch with us you can contact us here.