Yorkshire Building Society's customer promise to its one million members marks an escalation in the competition between lenders.
Last week's move raises the stakes from a war on price to one covering principles and service. Communications manager David Holmes says: "This is the next stage of proving what a mutual can do.
"For the last two to three years, we have been marketing ourselves on price. Now, we are looking at our behaviour to customers. We are attempting to adopt the moral high ground as it is another way of differentiating ourselves."
All lenders are seeking to distinguish themselves in the extremely competitive market. Analysts warn that the number of housing transactions will remain flat this year compared with a 16 per cent increase last year to 1.4 million transactions.
Lenders have to work harder just to stand still in 1998.
Yorkshire's move follows close behind a rush by the banks to woo borrowers by dropping mortgage indemnity guarantee charges on loans of up to 90 per cent loan to value.
Halifax dropped its MIG charge earlier this month in a bid to gain an advantage in the market.
Within five days, five rival banks – Northern Rock, Abbey National, Alliance & Leicester, Woolwich and NatWest Mortgage Services – had all dropped MIG charges for up to 85-90 per cent LTVs. The speed of reaction shows that no one wants to give an inch to rivals in such a fierce market.
But the move is a slow response to Cheltenham & Gloucester's decision to scrap MIGs for new borrowers in 1994.
C&G managing director Roger Burden pours scorn on Halifax's so-called market-leading initiative.
He says: "It has taken Halifax over three years to fol low our lead and the move is, in reality, an attempt to restore its market share. Furthermore, Halifax is only scrapping MIGs for lower-risk custom-ers and not across the board."
So far, none of the mutuals has moved on MIGs. They are all reviewing their positions.
Building societies are still preaching the word of mutuality, believing they are already competitive enough thr- ough their rates.
The banks have thrown down a challenge to societies and the cause of mutuality by abolishing MIGs. But Holmes says: "We reckon that we are competitive, even with charging MIGs. Because the Halifax lost out to building socie ties, it is now fighting back. It is feeling the heat."
Chase de Vere Mortgages managing director Simon Tyler says: "The MIG situation has been coming for a while. People's prospects are improving, therefore, the amount of claims is reducing. So lenders are moving towards self-insuring and taking the hit themselves."