Abbey wins no mortgage award for 'Reward'

Another day, another Abbey advertising campaign. This time, it's for a new guaranteed base- rate tracker mortgage, Reward.

Another day, another Abbey advertising campaign. This time, it's for a new guaranteed base- rate tracker mortgage, Reward.

Every two years, borrowers get 1 per cent cashback on their outstanding loan. Abbey says you can do what you like with this money: spend it or make an overpayment on the mortgage to eat into the sum you owe.

But the bank's conviction that this deal - which you can take with you if you move home - will "reward" customers is not shared by mortgage brokers.

The loan doesn't have early redemption penalties or a booking fee, but at 1.24 per cent over the Bank of England base rate (giving a current pay rate of 5.24 per cent), it's an expensive deal.

"It's a high rate for a variable mortgage; you can generally get between 3.99 and 4.25 per cent on a discount rate or tracker," warns Elliot Nathan, mortgage development manager at the independent financial adviser The MarketPlace at Bradford & Bingley.

"And there are forecasts of more interest rate increases this year - maybe another 0.5 or even 0.75 per cent - which would push up payments."

Despite the lure of cashback, he recommends taking a competitive standard discount or tracker with a different lender. "Your saving on cheaper monthly payments will be better than [Abbey's] cashback. You have to ask: 'Can a cheaper deal be found?' The answer is yes."

For example, he cites a two-year tracker at 3.95 per cent with Alliance & Leicester, offered by mortgage broker Charcol and The MarketPlace. There are no redemption penalties and valuation fees are refunded.

Calculating the monthly savings over two years on a £100,000 mortgage compared to the 1 per cent cashback, you would be nearly £1,600 better off not taking the Abbey deal, he says.

Jane Harrison, marketing director at broker London & Country, says: "It's almost like fool's gold. The rate is terribly poor and there are better deals from Abbey itself." She points to its two-year tracker mortgage, which offers the base rate minus 0.06 per cent - giving a payable rate of 3.94 per cent. There is a £299 arrangement fee.

Abbey also offers a flexible "lifetime tracker" loan at 0.5 per cent above base rate. This gives a current pay rate of 4.5 per cent and has a £550 arrangement fee.