Consolidation among Britain's embattled mutual lenders continued today with Skipton Building Society swooped on its ailing smaller rival, Scarborough.

Skipton's takeover of Scarborough will create a top-five building society with roughly 860,000 members and more than £16 billion of assets.

Skipton, found in 1853, was previously the UK's sixth largest building society, while Scarborough ranked in 17th position.

The acquisition marks the fifth deal or mooted bid in the sector within the past 12 months. Like their banking rivals, the UK's building societies - owned by their members - have been hard hit by the credit crisis.

Some of the smaller players have been effectively shut out of the wholesale funding markets, making it difficult for them to raise capital to lend on to customers.

Nationwide, Britain's biggest building society, said last month that it was taking control of Cheshire and Derbyshire societies.

Britannia, the nation's second largest mutual lender, and the Co-operative's financial services arm, have begun preliminary merger talks although they have yet to agree on firm terms.

Yorkshire Building Society is taking over its rival Barnsley, while the Chelsea and Catholic building societies have agreed to merge.

The two firms described the deal as a merger, although that turbulent market conditions and the continued slide in the housing market, had led to a "substantial impact" on Scarborough's profits and capital strength.

The society had approached Skipton as its preferred partner, they said.

David Hollingworth, the head of communications at London & Country Mortgages, a broker, said: "Desperate times call for desperate measures. But what the fallout will be is not clear. Undoubtedly, we will have fewer players in the mortgage and savings markets - this is not always in the consumers' or brokers' best interests."

Skipton said it would embark on a review of branches and staff numbers where there were overlaps. A spokesman said there would be no compulsory redundancies and the two societies only shared branches in four or five locations.

The enlarged firm will be called Skipton Building Society. It will be headquartered in the Yorkshire town of Skipton but will maintain Scarborough's modern purpose-built headquarters as an operational centre.

In order to preserve their capital strength, neither society will be paying any special bonuses to their members as a result of the agreed deal.

David Cutter, Skipton's deputy chief executive, will take charge of the enlarged society. John Goodfellow, the society's current boss, has already unveiled plans to retire at the end of the year. John Carrier, chief executive of Scarborough, will also retire in December.

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