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.

Some good news, possibly. British homeowners have reason to welcome the historic
US government takeover of mortgage giants Fannie Mae and Freddie Mac according to city analysts.

The Bush administration announced last week that it is taking control of the two institutions to avert the potential for major financial turmoil. Their bankruptcy could have triggered an economic collapse.

Between them, Freddie Mac and Fannie Mae finance or guarantee nearly half of the outstanding mortgages in the US, but they have lost 14 billion dollars (£8bn) in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

US president George Bush said that allowing the companies to fail or further deteriorate would damage the home mortgage market, and could weaken other credit markets that are unrelated directly to housing. There was a fear total meltdown of the US economy was only weeks away.

The effective government takeover will lead to major changes in how the two mortgage giants are run. As part of the changes, the management of the two companies will be replaced while the firms will be given access to extra funding to support their business in the short term.

The companies’ bonds are held by banks and other institutions around the world, so the bail-out will have an international knock-on effect.

It could mean a boost in confidence for UK lenders, leading to the greater availability of mortgages. Double-digit gains for banking stocks sent the London market almost 4% higher after the bail-out although the long term impact of the moves remains to be seen.