Abbey/Alliance & Leicester merger prompts mortgage fears

The merger of mortgage lenders Abbey and Alliance & Leicester (A&L) is raising fears over a potential reduction in consumer choice.

Following confirmation yesterday Abbey-owner Banco Santander has made a bid for the smaller Alliance & Leicester, MoneyFacts.co.uk has raised the alarm over the potential impact on consumer interests.

While acknowledging the sale of the ailing bank will "briefly bring increased confidence to the industry" – which is still reeling in the wake of the credit crunch – the longer term picture is far less rosy.

"It will also bring further reduction in consumer choice, which is already under pressure and has seen significant reductions, particularly in the mortgage market," explained Darren Cook, mortgage expert at MoneyFacts.

While both organisations price mortgage products at similar levels, A&L utilises a percentage fee structure in its product make up.

Furthermore, A&L has historically had more accommodating criteria with a maximum advance of £1 million, compared with Abbey’s £550,000. Finally, customers also benefit from more flexible features such as underpayments and payment holidays.

There are fears these nuances of the market could now disappear.

"Historically, mergers in the mortgage market have worked out as more of a takeover of the mortgage book, with one company’s product range features disappearing altogether without bringing together the best of both product ranges," added Mr Cook.

However, in the savings sector the impact is likely to be muted.

"Both institutions operate in the same savings markets, choosing to offer instant access/no notice accounts rather than notice accounts along with a selection of fixed rate bonds," added Michelle Slade, analyst at MoneyFacts.

Finally, Abbey may benefit from the acquisition of the A&L Premier Direct Account, which has dominated the current account market in recent years.

"A&L’s Premier Direct account has really laid down the gauntlet to other institutions, consistently topping best buy tables," concluded Ms Slade.

"If this product disappears, it will be a huge loss to the current account market."

Chris O'Toole