Cheap home loan could cost you a lot more: Sue Fieldman investigates the claims of a club offering an exceedingly low mortgage rate and the possible pitfalls of joining up

A MORTGAGE at a fixed interest rate of 4 per cent for 25 years and an 'incredible monthly income' sounds like an offer too good to be true.

Not according to the 4% Mortgage Club, which is based in Portsmouth. Membership of the club costs pounds 30 for an 'exclusive joining pack'. According to the literature you then have to pay pounds 10 per month. The qualifying period for mortgages is two years. The total payment is, therefore, pounds 270.

But that will not get you a mortgage. You have to persuade other people to join the club and pay their pounds 270. You will then earn commission - 'the incredible income' and be entitled to a mortgage.

The sting in the tail is that the amount of the mortgage is limited to 10 per cent of the total contributions paid to the 4% Mortgage Club by members you have recruited either directly or indirectly.

To get a mortgage of pounds 60,000, therefore, you will have to generate pounds 600,000 of subscriptions to the club.

Moreover, the minimum loan is pounds 5,000 so you must have introduced pounds 50,000 before you qualify for any mortgage at all.

According to the literature the pounds 270 is 'fully refundable'. However, you do not get money back.

At the end of two years, if you are not entirely satisfied with the mortgage available to you, 'we will refund your contributions, less commissions already paid, with goods from the Argos catalogue'.

The club has been up and running since the beginning of April. The chairman, Peter Van Dyke, claims that there are already 300 members.

When asked about the minimum pounds 50,000 of business required to get a loan of pounds 5,000, Mr Van Dyke said: 'It is very, very achievable. I have some guys already on course for mortgages in excess of pounds 100,000. The proof of the pudding is 21 months from now. That is when this company will start to rock and roll.'

Bob Imrie, the Assistant County Trading Standards Officer for Devon, is less convinced.

He said: 'You certainly need a lot of subscribers for one person to get a reasonable-size mortgage. There are other, similar schemes running elsewhere in the country and my advice is always 'be wary'.'

A spokesman for the Consumers' Association also advises that you do your sums carefully.

He said: 'If you are ever tempted by a scheme which involves you introducing other people to a company before you get the benefits that encouraged you to join, stop and think.

'Add up the number of people you will be dependent on and the time involved and ask yourself whether it is really worth it.'

Mr Van Dyke hopes the 4 per cent mortgages will be coming from the TSB Bank, where the club has three accounts. However, the rules of the club allow him to go elsewhere for funds if necessary.

Mr Van Dyke said: 'We have investors who pool their money into a central fund. When a member comes to qualify for a mortgage we then transfer that money from the pool of money. The TSB take a charge on the money, and they are happy to lend the money to my member at 4 per cent. The bank has no risk.'

Mr Van Dyke added: 'The TSB want 3.5 per cent of that 4 per cent. I take the other 0.5 per cent. Once the member has paid off the mortgage I get back the capital I deposited with the bank.'

A spokesman for the TSB said: 'This type of scheme is not endorsed by the bank at all. We are looking into it.'