No windfalls in Chelsea merger

No windfalls or interest rate improvements are on offer in a planned merger of the Yorkshire and Chelsea building societies.

The deal, announced this week, is effectively a takeover of Chelsea after heavy losses sustained by the society as a result of mortgage fraud and the collapse of the Icelandic banks last year.

It is the latest in a series of takeovers among mutual lenders triggered by the financial crisis and recession. Analysts expect further consolidation as societies struggle with low profitability.

Recommending the deal this week, Chelsea said that without the tie-up it would have to offer worse rates to preserve the society’s capital base. Both societies also said that they were not recommending merger bonuses for customers “in order to protect the financial strength of the enlarged society”.

Steve Huxham, a leading building society campaigner, criticised the proposal for offering no direct benefits to savers and borrowers. He is urging members to vote against the deal at general meetings planned for next month.

Currently both societies charge higher-than-average standard variable rates (SVRs) on their mortgages: 4.99 per cent at Yorkshire and 5.79 per cent for Chelsea borrowers.

Huxham said: “For Yorkshire members, why would you want to vote for a deal with a lame duck when your society has come out of the financial crisis reasonably well?”

The two building societies will ask their 2.7m members to vote in favour of the proposed merger in the next few weeks.