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Merger might

Nationwide Building Society’s planned merger with Portman has been met with optimism by a broker market desperate for a lender to emerge from the pack to challenge HBOS’s dominance.

The deal, which the Building Societies’ Association describes as the biggest-ever amalgamation of two societies in history and the biggest movement in the sector since Halifax’s demutualisation in 1997, will make the combined society, which will keep the Nationwide name, the second-biggest mortgage lender in the UK.

Many commentators believe that HBOS, which has a 21 per cent market share compared with second-placed Abbey on 10 per cent, is too far ahead of its rivals and is able to use its clout to price others out of the market.

As well as building a platform to challenge HBOS, commentators are pointing to Nationwide’s eventual full-blown entry into the sub-prime market as another bonus that will generate greater competition.

Nationwide is likely to run multiple brands for intermediary mortgage business, with the initial signs that UCB Home Loans and Portman’s broker arm, The Mortgage Works, will be retained.

Nationwide executive director Stuart Bernau says: “We are absolutely delighted with the deal. We have been growing, as has Portman, but we have been looking to strengthen ourselves and this is an ideal opportunity put us second in the mortgage market and it gives us a stronger position.

“Some of the details on intermediaries still have to be ironed out and we have to decide how to run the brands we have. UCB and TMW could exist as brands. HBOS and RBS have worked well with various brands. We will look at TMW and UCB to see if they can be brands in their own right and we will consider our options.”

The combined mutual will be headed by current Nationwide finance director Graham Beale, who will become chief executive. Nationwide CEO Philip Williamson and Portman counterpart Robert Sharpe will both have retired by the time the merger is complete.

Most intermediaries are pleased with the merger. Openwork mortgage proposition director Paul Shearman says: “This is a significant move for the industry and very positive. It places the combined group in a position to challenge HBOS and takes their specialist lending figures up to about 4bn a year. It is good for the product range and the combination of the two firms gives it a strong position to take to the market.”

Pink Home Loans managing director Tony Jones thinks the link-up will bolster capabilities on the specialist side. He says: “It is quite a crowded market already but to have Nationwide there is important and good news for the market.”

Nationwide will become the latest in a long line of prime lenders, such as Alliance & Leicester, making the move into sub-prime. It already announced earlier this year that UCB would be dipping its toes into light adverse business to add to its BTL and self- cert propositions but the addition of TMW’s light to medium range will bolster its position in the adverse market.

Beale admits that Nationwide has been turning away too much business, even though it is happy with its conservative risk profiling of borrowers.

One area where Nationwide will remain cautious for the time being is in the equity-release market as it hinted it is likely to dampen down Portman’s equity-release range.

Any potential changes are still a year off but the announcement of the merger took most observers by surprise as there had been no inkling over the past few weeks that such a move was imminent.

Savills Private Finance associate director Melanie Bien says: “‘It was a bit of a shock but on the face of it, it looks as though it will be a pretty good alliance. It will be interesting to see how Portman’s mortgage products fit into the new regime as at the moment. They regularly appear at the top of the best buy tables with low rates but these come with substantial fees while Nationwide is famed for its relatively low fees compared with the rest of the market.

“Nationwide still manages to offer fairly competitive deals with relatively low rates so this is likely to continue while the Portman’s very low rates and high fee combo could well disappear.

“It will still be a relative minnow compared with HBOS, with combined assets of 150bn compared with HBOS’s 540bn. It is unlikely that the powers that be at HBOS will be losing much sleep over this deal.”

Money Partners director of communications Bob Sturges says: “It will be interesting to see how Northern Rock reacts and while a merging of the two specialist lenders, UCB and TMW, is bound to be considered, the end result will likely be very good for intermediaries.”

Nationwide will have 880 branches across the country and Portman’s 1.8 million members will get a 200 windfall as part of the 500m deal.

Portman mortgage customers on the 6.75 per cent standard variable rate deal will see their rate slashed to Nationwide’s SVR, currently 6.24 per cent. That will apply both to direct customers and those introduced by brokers.

BSA spokesman Neil Johnson is in no doubt that the deal is good news for competition as well as some customers. He says: “You can see all the grief that banks are getting about not treating customers fairly which societies are not and it is an important point for the market to remember. Building societies are and will remain an important part of the financial services industry and will continue to flourish by offering good value to their members.”

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