Coventry Building Society yesterday added to the pressure being applied by mutual societies on those converting to bank status.
The society pledged to cut mortgage rates, reward loyal long-term borrowers, and raise interest rates to savers.
Around pounds 20m a year will be given back by Coventry to its members, including both borrowers and savers, roughly half its annual profits. It believes that rival institutions which need to pay dividends to shareholders will not be able to match its move.
Coventry's basic variable mortgage rate will be reduced from 7.49 per cent to 7.25 per cent to all borrowers from next Monday. The new rate compares with Abbey National's current 7.29 per cent, and is the same as the current rate charged by Halifax, but slightly higher than the 6.99 per cent now charged by the most aggressive mutual building societies including the Yorkshire.
Existing customers who have had the same mortgage with the Coventry for the past five years or more will enjoy an even deeper cut, reducing the cost of their mortgage to 6.49 per cent effective from 1 May.
This will save a borrower with a pounds 40,000 endowment mortgage around pounds 30 a month on the current rate, chief executive ,Martin Ritchley, said yesterday. By the end of this year, roughly half the society's 100,000 borrowers will benefit from the "Privilege Rate."
New borrowers will be offered a 10 day cooling off period after the issue of a mortgage advance, to allow borrowers to change their minds if they are not satisfied with the product they have chosen, with a full refund of any charges or fees. The society's 575,000 investors will also benefit from increases of up to 0.5 per cent on all variable rate savings accounts, instead of the rate reduction they might have expected following the last cut in base rates.
The Coventry's will pay 6.9 per cent net on a pounds 3,000 Tessa account, compared with 6.5 per cent at Halifax and 6 per cent at Abbey National.