So what's the 'must have' - a low rate or the latest gadget?

Laura Brady asks how many borrowers will be better off as lenders lure us with freebies
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The Independent Online

Drive off in a spanking new car or take home cash or a haul of the latest computer wizardry!"

It sounds like gameshow glitz but sales pitches along these lines have now entered the more mundane world of mortgages, where lenders are battling for your custom with freebies.

Scarborough building society is the latest to try to tempt buyers, offering £2,600 worth of electronic goods from Apple - including an iMac and iPod - with its MortgagePlus range of five-year fixed-rate and tracker loans.

"We are learning from retailers," says Scarborough's chief executive, John Carrier. "Why must financial services have a monopoly on being boring?"

But someone must pay for such incentives, warn mortgage brokers: the borrower. For the costs are usually recovered in higher loan rates, fees and redemption penalties.

For example, the MortgagePlus five-year fixed rate is 5.29 per cent; Scarborough's own standard fix is 4.79 per cent. The arrangement fee is costlier too: £595 against £395. Redemption penalties start at 7 per cent of the sum outstanding with MortgagePlus: on the standard fix, they begin at 5 per cent.

For many, these extra costs could be too much, warns James Cotton of broker London & Country. "It's especially important that first-time buyers and those with larger loans are not dazzled by freebies."

For comparison, he points to a five-year fix with Britannia building society, at 4.39 per cent. It would save a borrower £624 a year on a 25-year £100,000 repayment mortgage.

But that's not to rule out freebie deals, he adds. "If you have a small loan, against which £2,600 worth of computer equipment would represent a big enough percentage, it could be a good choice."

Mr Carrier says his building society never claimed MortgagePlus was the cheapest product on the market. "It's still a fair deal, and we have other [cheaper] fixed and tracker loans if people prefer."

Scarborough is just one lender to have taken an approach more often seen on the high street. Last year, for example, West Bromwich building society offered a Rover 25 on loan completion. However, borrowers had to stick to the lender's standard variable rate for five years (it's now 6.54 per cent) with a 7 per cent redemption penalties during this period.

"Brokers have a duty of care to offer customers the best value - and that's rarely these incentive deals," says Mark Chilton of broker Purely Mortgages.

If you're attracted by an item on offer with a loan promotion, he suggests a different strategy. "Take a market-leading flexible remortgage [that lets you make overpayments] instead and add on the extra cash you need to pay for your goods. Then go out and buy them, and raise your mortgage payments for a year to pay for them."

Watch out for other wheezes. Several lenders now say they will give you cash if they can't beat your current remortgage deal with a rival. But this money - up to £250 - is nothing more than a distraction to stop you shopping around.

Beware also of "cashback" mortgages that hand you a lump sum. Loan rates are higher - usually at least 6 per cent, says Mr Cotton at London & Country.

However, some borrowers are happy with a promotion. Donna and Stuart Readman, from Lincoln, took out a £75,000 remortgage with Scarborough to take advantage of a special offer: a £3,300 plasma television.

"We looked into other, slightly cheaper, deals but, because the loan is small, the difference in repayments each month was tiny." They now pay £421 a month on a five-year fix at 5.49 per cent. "We would never have spent this on a TV ourselves and the kids love it."

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