Post Office offer cashback on mortgages

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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 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:

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

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:

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:

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.

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.