James Daley: If there's no such thing as a free lunch, what does a free car cost?

West Bromwich Building Society caused a bit of a stir in the personal finance world last week by announcing it was to become the first ever lender to give away a free car with every mortgage.

West Bromwich Building Society caused a bit of a stir in the personal finance world last week by announcing it was to become the first ever lender to give away a free car with every mortgage. As West Brom well knows, it's the kind of offer that is quite hard to ignore. For most people, buying a car is a fairly big deal, and normally takes some financial planning and perhaps some saving too. So to be offered a free one appears to be too good to be true.

What's more, the catch - there is of course a catch - doesn't appear to be too onerous: stick with West Brom's standard variable rate, currently a reasonably competitive 5.99 per cent, for five years - then you're free to transfer to anyone you like.

West Brom's offer is, however, not quite as great as it sounds. In fact, for most people, it will be totally unsuitable. Unfortunately, this will be unlikely to stop people signing up in their droves.

The problem with this sort of give-away is that it takes your eye off what's most important - as the likes of West Brom are well aware. Sainsbury's Bank offers 30,000 nectar points with its flexipay mortgage (enough for a free flight to just about anywhere in Europe), MBNA gives away Accurist watches with its credit cards, and HSBC hands out driving lessons with its student accounts.

The firms behind these handouts remain adamant that there is nothing wrong in using customer enticements in a competitive market. But the truth is that this sort of practice is not far short of plain irresponsible. Sure, taking freebies to open a bank account, which has no tie-ins, is pretty harmless. But when you're encouraging punters to take out credit cards by giving away gifts or offering free cars to bring in mortgage customers, you will undoubtedly get people bending over backwards to take on products which they should never have gone near.

Taking out a mortgage is, for most people, the biggest single financial transaction they will make in their lives, and ensuring that your monthly payments are manageable, both now and in the case of potential rate rises, is the most important factor to consider. Not whether or not you get a freebie.

The best deals on the market at the moment are almost 2.3 percentage points cheaper than West Brom's free car offer - a saving of nearly £300 a month on a £150,000 mortgage - which is real money to most people. Tying yourself into a standard variable rate for five years is dangerous too. You'll take the full hit on every rate rise - and who knows what will happen to rates between now and 2009? One thing is certain, the next movements will be upwards.

But this will be the last thing on the minds of those fighting to get their hands on a free car - many of whom will not have even been considering buying one until they heard about this deal. Insurance, road tax, and licensing are not included, all of which will have to be paid when you get your shiny new Rover.

Don't get me wrong, West Brom's deal may be just what you are looking for - especially if you were about to buy a new car anyway. But do the maths before rushing in.

Fresh hopes for Equitable Lifers

Ruth Kelly's climb-down over Equitable Life this week will not be the last time she is humiliated on this case. Her admission that it will be possible to let the Parliamentary Ombudsman investigate the Government Actuary Department's involvement in the affair is certain to lead to further embarrassment for the Treasury.

Lord Penrose's report pinpointed the GAD as being at the heart of the regulatory failings which let the crisis at Equitable happen. Assuming that the Ombudsman, Ann Abraham, reopens her inquiry, which looks extremely likely, she will have to be blind or gagged to find no fault with the GAD and the Government as a whole. There is now a great hope that the Government will eventually be cornered into paying compensation to Equitable's long-suffering policyholders.

A body blow to the caring society

The news that long-term care insurance is to disappear withoutmaking it to old age itself is no great surprise. People don't like facing up to the fact that there's a good chance that they may end up in a care home. When you've got full use of your limbs and faculties, the idea seems far too horrible to bear thinking about.

But the Government should be concerned. People are not saving enough for their retirement, and in the future many will be forced to use the equity in their homes to supplement their pensions - a practice which is still relatively rare these days. For now, most people hang on to their homes, either to pass on to their relatives, or to pay for care fees if the need arises.

So in 50 years' time, when everyone is retiring on the capital in their property, where will the money come from to pay for those who need to go into care? One thing's for sure - the Government won't be able to afford it. And people won't be able to insure themselves against the potential liability, because long-term care insurance won't exist.

Already, the Government is running into serious problems trying to fund the growing number of care-home residents who don't have adequate resources. Very soon, this will become a problem which the Government will no longer be able to ignore.

j.daley@independent.co.uk

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
Sport
Fans hold up a scarf at West Ham vs Liverpool
footballAfter Arsenal's clear victory, focus turns to West Ham vs Liverpool
New Articles
i100... she's just started school
News
news
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Sport
football
New Articles
i100... despite rising prices
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam