Mixed news in the UK mortgage market, two small UK mortgage lenders, the Derbyshire and Cheshire Building Societies, have had to be rescued by the Nationwide Building Society after running into financial difficulties.  

However, hopeful members of the two firms will not get any bonus payments.  

Subject to approval by the Financial Services Authority and the Office of Fair Trading, the deals are expected to be completed by the end of the year. They will boost the Nationwide’s position as the
UK’s biggest mutual lender adding almost one million more members to its existing 14 million.  

The enlarged firm will have 1,000 retail outlets, £191bn of assets and £122bn of retail deposits.  

The Derbyshire and Cheshire had apparently separately approached the Nationwide to help them survive the tough economic climate and seek protection for their borrowers and savers.  

Both firms said they expected to make a loss in the first six months of 2008 as a result of the declining
UK commercial and residential property market.  

Meanwhile, problems with a commercial property loan will result in the Cheshire making a £10.5m pre-tax loss in the first half of the year. The Cheshire has assets of £4.9bn, 45 branches and more than 440,000 members.  

Despite these problems, the Nationwide considers their core loan businesses to be fundamentally sound. But it will not be handing out any windfall payments to members of either the Derbyshire or the
Cheshire. In addition, neither firm’s members will be given a vote on the transaction to ensure that the mergers are completed as quickly as possible.

This is a peculiar situation because on the one hand the companies have failed and been bailed out by another. This brings back memories of Northern Rock from a year ago. On the other hand, the Nationwide has seen potential in the companies to warrant taking them over, something which did not happen with Northern Rock.

Mixed news then, but with a happier ending than the sorry saga of Northern Rock, something we should all be happy about.

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