The Nationwide Building Society is in talks to merge with two of its smaller rivals, the Derbyshire and Cheshire Building Societies.

The Nationwide, the UK’s biggest mutual lender with 14 million members, is to step in to support the two firms with the approval of financial regulators.

Smaller lenders are under growing pressure due to the credit crunch.

The BBC’s Business Editor Robert Peston said members of the two smaller firms would not get any windfall payments.

Tough climate

Nationwide confirmed that it was in “advanced discussions” with the Derbyshire and Cheshire organisations about separate mergers.

The Derbyshire is the larger of the two, with 500,000 members, 50 branches across the Midlands, the North East and Yorkshire and total assets worth more than £7bn.

“The City watchdog, the FSA, wants them under the stewardship of the more robust Nationwide” BBC Business Editor Robert Peston

The Cheshire has about 400,000 members, operating 60 building society and estate agency branches.

It has assets of just under £5bn.

Both societies saw their profits fall last year, to £8.7m and £8.1m respectively, amid tough conditions in housing and credit markets.

Like all lenders, building societies have cut the amount of loans on offer and raised rates in response to the credit squeeze, although both Derbyshire and Cheshire insist they have strong mortgage books.

However, the negative publicity surrounding the near-collapse of Northern Rock has affected smaller banks and mutual lenders more.

When the Nationwide merged with the Portman last year, the latter’s members pocketed windfall sums of between £200 and £1,000.

But our correspondent said the sharp decline in the housing market ruled out the possibility of windfall payments in this instance.

News reported by The BBC

Nationwide is planning to expand into the Irish Republic next year, giving the UK’s largest building society access to European funds to help combat the effects of the credit crunch.

The mutual has already approached the Financial Services Authority and the Irish Financial Services Regulatory Authority over the move and expects to begin operating early next year.

A spokesman described the decision as a “prudent strategic move … to further diversify its geographical operations and funding opportunities.” The move will give Nationwide a foothold in the eurozone, which would give it access to some of the European Central Bank’s funding for fin-ancial institutions to help ease the effects of the credit crunch.

The building society has more than 800 branches, controls half of all mortgage lending business and is the second largest savings provider in the UK.

However, Nationwide’s Republic of Ireland customers will not enjoy the same range of products as their UK counterparts. Customers in the Republic will have access to just two products – an instant access savings account and a fixed-rate bond, available by phone, post or online.

A spokesman for Nationwide said: “It is too early to say how the interest rates for these products will compare to the UK market, although they will be competitive for the Irish market.”

There are no immediate plans to open branches in the Republic or offer customers more complex products like mortgages. This also means that Irish customers will not have access to the membership and voting rights that Nationwide’s UK investors enjoy.

“This is a relatively small but growing market and there could be scope for a more wide-ranging product line in the future,” the spokesman said.

Further details of the expansion will be made available after formal applications to the UK and Irish regulators.

News reported by The Independent

The cost of fixed-rate mortgages deals hit an eight-year high in June before falling back in July.

Figures from the Bank of England show that the average rate for a borrower with a 25% deposit was 6.6% in June, up from 6.26% in May.

That was the highest average rate for these popular types of mortgage since February 2000.

However, there has been a flurry of rate cuts from mortgage lenders in the past month, bringing down their cost.

“Lenders are starting to bring their rates down,” said Aaron Strutt of mortgage brokers Chase de Vere.

“Since the Nationwide cut its rates others have been bringing their rates down too.”

“Some lenders have been cutting their rates more than once a week, so overall the cuts have been quite big” Ray Boulger, John Charcol mortgage brokers

July saw a series of small cuts in mortgage rates by the main lenders, starting with the Nationwide, swiftly followed by Abbey and the Halifax.

Mr Strutt estimates that the average two-year fix now costs 6.5%, across all lenders.

Funding problems

The credit crunch has made banks become much warier about lending to each other and so the cost of doing so on the financial markets has generally been rising, pushing up the cost of financing fixed-rate lending to the public.

As a result, interest rates on two-year fixed-rate deals, for customers with a 25% deposit, rose from 5.74% in February to their peak in June.

But in the past month the cost of borrowing between lenders, known as the swap rate, has dropped back.

Ray Boulger, of mortgage brokers John Charcol, said that some lenders’ cuts in the past month had been cumulatively quite significant.

“Some lenders have been cutting their rates more than once a week, so overall the cuts have been quite big,” he said.

“The most important thing though is the cost of the best deals; but I have no doubt that the average rate for July will be lower than for June,” he added.

The Bank of England has cut interest rates once last autumn and twice this year, which has been reflected in the average variable rate from all UK lenders falling from 7.74% last October to 6.92% this June.

But fixed-rate mortgages have, until very recently, been moving in the opposite direction.

News reported by The BBC

Halifax, the UK’s largest lender, on Friday brought momentum to the trend of falling mortgage rates as it cut the cost of a number of deals for the second time in a week.

The bank reduced its two- and five-year fixed rates by up to 15 basis points. Other brands within the HBOS group – BM Solutions, Bank of Scotland (BoS) and Intelligent Finance – also cut a number of rates, including on some buy-to-let and self-certification loans.

The changes will go some way to reassuring borrowers that mortgage rates should start to improve over the next few months. Other lenders, including Nationwide, Lloyds TSB, Abbey and Woolwich, have also launched cheaper deals in the past couple of weeks. Nationwide reduced some of its rates by as much as 30 basis points.

But brokers said it was still too soon to call the peak in mortgage rates.

“Certainly for the first time in 12 months we are seeing lenders jockeying for business rather than pulling away, and we are talking about major lenders through to smaller lenders,” said David Hollingworth at broker London & Country Mortgages. “But we have to be hesitant about saying all rates will continue to get better.”

Swap rates, which underpin the cost of short-term fixed lending, have fallen fairly rapidly in recent weeks, triggering the reduction in fixed mortgage rates. But any renewed rise in swap rates, if inflation continued to go up, for example, could mean lenders increase rates again.

Brokers said the fact that a number of banks were moving rates downwards, and showing more of an appetite to lend, was still good news for homeowners.

In recent months lenders that have launched reasonably competitive mortgage rates have rapidly been inundated with business and forced to pull the deals, sometimes within days. But as more banks lower rates the balance between supply and demand should even out and the best rates should be available for longer.

Nationwide is now offering a two-year fixed rate of 6.18 per cent, with a fee of £599 ($1,197), while Lloyds TSB and Halifax are offering two-year rates of 6.34 and 6.47 per cent respectively. The best deals are only available for borrowers with deposits of at least 25 per cent. Those with smaller deposits are still having to pay much higher rates, and are unlikely to see any improvement soon.

For borrowers who do not need the security of guaranteed mortgage payments, two-year tracker rates can be found from 5.49 per cent, according to Moneyfacts.co.uk.

Battle for savings ends as top fixed-rate offers pulled

The top two fixed-rate savings deals have been withdrawn just weeks after launch, in a sign that lenders are no longer battling for customers’ cash to offset the tightened credit market, writes Elaine Moore.

The Bank of Cyprus withdrew its 7.15 per cent savings bond yesterday following Birmingham Midshires’ move to end its 7.17 per cent offering on Thursday. Others are likely to follow suit and analysts said the action was likely to spell the end of 7 per cent plus short-term bonds.

Savings providers have competed fiercely to outbid each other to the top of the savings rates table in recent months in an effort to secure ever-higher levels of funding from customers. The desire for retail cash inflow is a result of the difficulties faced by banks and building societies to obtain funding from the wholesale market.

The withdrawal of the top two rates could be a sign that providers have overreached themselves, said Kevin Mountford, head of savings at price comparison site moneysupermarket.com.

“It had to happen sooner or later,” he said.

>News reported by The FT