Cash back deals: are banks manipulating borrowers?

The Competition and Consumer Protection Commission (CCPC) warned lenders last month about their use of cashback deals and loyalty discounts. The commission believes that such incentives may be detrimental to consumers and may reflect unhealthy competition in the mortgage market.


Cash back deals have become more and more common in the market in recent years. These deals work by giving borrowers a certain percentage of their total mortgage amount back at the start of their loan, and they mostly target first time buyers who may need the extra money on hand to furnish their homes or to tide them through a tough transitional time in life.


A quick look around the market reveals that major lenders, such as AIB, Ulster Bank, Bank of Ireland, EBS and KBC, all have similar cash back deals, mostly ranging from 2-3% or €1500-€2000. The catch on these loans however, is that interest rates on them are often higher than the average on traditional loans. This means that over the term of the loan, extra interest paid  may turn out to be much higher than the amount of cash back received.


The CCPA warns that cash back deals could “represent a sophisticated attempt to manipulate consumer behaviour” by luring borrowers in with immediate liquidity. However, a conscious buyer should be able to factor in the effects of the interest rate and make a valued judgement about which mortgage to take. Furthermore, cash back deals may make financial sense to many first time buyers who are looking at smaller loans with a large loan to value ratio.


On a larger scale the CCPC believes that cash back offers and other innovative measures to attract customers such as loyalty discounts may eventually put the mortgage market and banking system at risk. It suggests that the market be more inclusive of new players and shift towards more traditional and less risky types of loans. However, it is ultimately up to the buyer to be prudential with their own choices and thorough in researching their options.

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