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The Independent Online
The disappearance of National & Provincial Building Society into the maw of Abbey National this month sets the scene for the first real confrontation between the mutuals and the converting building societies. N&P's borrowers and savers will soon have their shares and bonuses and will be free for the first time in 18 months to look for better offers elsewhere in the market.

By definition they are now Abbey National members. From next month borrowers with mortgages over pounds 60,000 and pounds 100,000 will qualify for the slightly lower rates Abbey offers on large mortgages, and holders of maximum Tessa accounts will qualify for the Abbey premium. But by definition ex-N&P customers are not eligible for any discount rates or cash-backs on the special remortgage deals Abbey offers to win new business.

The general view is that many of them will go elsewhere. Borrowers will be in pursuit of a special discount or cash-back deal while they can still be found, or a fixed rate in case mortgage rates start to rise again next year.

Others will be tempted to try their luck by taking their accounts to the remaining mutuals who might still convert to banks themselves or more likely be taken over. If so, Birmingham Midshires looks the most likely candidate to go this year.

But the whole industry will be studying intently the speed with which the N&P customer base dissipates, because it will give the next generation of converters, including Woolwich, Alliance & Leicester, Northern Rock and the mighty Halifax itself, a clearer idea of how much business they stand to lose when their customers have their conversion bonuses and are free to move. Even a 10 per cent loss of business for these four would represent a massive shift of money and market share.

The evidence from N&P will also give Halifax and other converters precious time to try and devise a strategy to retain business after conversion, although that will not be easy when they have commercial shareholders demanding dividends as well.

Last but not least the behaviour of the N&P customers will help the market put a price on the 78 remaining mutuals, led by Nationwide, Bradford & Bingley and Yorkshire, who will be down to 27 per cent of the mortgage market between them when the current round of conversions is complete.

Committed though they are to militant mutuality, they could have attracted so much business from the likes of Halifax next year through cheaper mortgages and higher savings rates that they have to be taken out forcibly, in a final Big Bang for the demutualisation process.

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