Brum Brum offer isn't so good under the bonnet

Buying your first home is harder today than it has ever been, which is why mortgage lenders are trying to come up with innovative ways of making the process a little easier. From refunds on valuation and arrangement fees to offers of legal fees paid in full or thousands of pounds cashback, the perks threaten to dazzle first-time buyers when they try to select the best mortgage deal.

Buying your first home is harder today than it has ever been, which is why mortgage lenders are trying to come up with innovative ways of making the process a little easier. From refunds on valuation and arrangement fees to offers of legal fees paid in full or thousands of pounds cashback, the perks threaten to dazzle first-time buyers when they try to select the best mortgage deal.

You should always look beyond the sweeteners on a mortgage to the underlying rate, but this can be hard when the incentive is so dazzling that it is difficult to take anything else in. And while a Rover 25 is the last thing I'd normally describe as dazzling, it may be considered as such when it is offered free when you take out a mortgage.

West Bromwich building society took the incentive to new levels last week with the launch of its Brum Brum mortgage. The awful pun refers to what the Midlands-based building society is offering first-time buyers and those remortgaging: a brand-new car, for free. The car in question isn't any old banger, either, but a brand new 1.1 litre Rover 25. Customers receive delivery of their new car within three weeks of completion of their mortgage (or five weeks if they want to be fussy and specify the colour). Oh, and as if that weren't enough, borrowers also get free loan protection insurance for six months and their valuation fee refunded (up to a maximum of £350).

How can West Brom afford to give away a new car, which retails at £7,995 on the road? As with any deal that looks too good to be true, this one has clauses the customer should be aware of before signing up. Not surprisingly, the offer is less attractive than it appears to be.

The first problem with the Brum Brum mortgage is that interest is charged at 5.99 per cent, the Society's standard variable rate. Not only will this move up and down in line with the base rate, so customers won't be able to budget as they would have done on a fixed deal (particularly useful for first-time buyers), it is also pretty high. Plenty of cheaper mortgages are out there: for example, you can get a two-year, fixed-rate deal at 4.64 per cent (from Mercantile building society) or a decent discount for less than 4 per cent.

The other problem is the redemption penalties attached to the Brum Brum mortgage. If you switch to another home loan during the first five years, you will be charged 7 per cent of the outstanding loan, up to a maximum of £7,000 (which is almost the value of the car). And even if you wait for five years before switching your mortgage, you will still have to pay a penalty: the interest to the end of the following month.

The whole deal smacks of gimmickry, although the building society strenuously denies this accusation. Its operations director, Stephen Karle, says "it isn't a gimmick. It's an integrated deal" because the lender is linking with Rover. In other words, there is no chance of West Brom running out of cars or the offer expiring, leaving hundreds of disgruntled customers.

West Brom also says it has been "stunned by the response" it has received since Tuesday's launch, particularly from locals who are keen to show their support for two Midlands-based companies. It won't reveal details of how many buyers have applied for the mortgage, however.

But the question remains whether you would be better off taking out the cheapest mortgage you can find and then applying for a personal loan to buy a car - if that's what you really want. That way, you can choose the make of car yourself - and keep the financing separate from your mortgage, so you can pay it off more quickly.

In this case, you would also get lower monthly mortgage repayments and no extended redemption penalties (if you are sensible and choose the right deal). If you think interest rates are going to rise, which is what most experts are forecasting, you also have the option of a fixed-rate deal.

Admittedly, the Brum Brum mortgage will get you a car as well as a house but you may find the cost is too high over the long term. As with any mortgage, the advice is to read the small print and make sure you know what you are committing yourself to - before you actually do so.

m.bien@independent.co.uk