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Societies moving into offset mortgages

Two building societies are challenging lenders in the growing offset mortgage market with new products from Norwich & Peterborough and Coventry.

N&P says it is the first society to link a current account with mortgage and savings accounts while Coventry&#39s product offsets savings against borrowing.

N&P says its lifetime tracker product&#39s rate of Bank of England base rate plus 0.8 per cent means higher-rate taxpayers can effectively earn up to 7.58 per cent on their current account and savings.

The product features no reservation fee, one free standard valuation, free legal fees for remortgage clients and no early repayment interest charges.

It also offers a 5.59 per cent fixed rate for five years, reverting to base rate plus 0.8 per cent, with a £199 reservation fee. Early repayment charges of 5 per cent apply in years one to three, 4 per cent in year four and 3 per cent in year five. Both products have a maximum loan to value of 95 per cent.

Coventry&#39s offset mortgage is offering 1.44 per cent discount off its standard variable rate of 5.79 per cent until March 2009. There are no early redemption charges and there is a free remortgage transfer service and free valuation. There is a booking fee of £199.

N&P group product manager Gary Lacey says: “Everyone who has been warned that their endowment policy may not repay their mortgage debt should use this as a way to avoid a shortfall.”

Coventry operations director David Stewart says: “The combination of having a flex-ible mortgage, earning effectively tax-free interest your savings, and reducing the total amount that you repay, is making people think seriously about the real benefits this type of mortgage can bring.”

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