Page last updated at 10:57 GMT, Monday, 14 July 2008 11:57 UK

Q&A: What A&L deal means for customers

Branch of Alliance & Leicester
The move prompted a big rise in A&L's share price

Banco Santander, the owner of Abbey, says it has agreed a deal to buy Alliance & Leicester (A&L).

It has prompted debate about whether any takeover should be welcomed for creating a more robust, bigger bank, or whether the loss of an independent bank would put too much power in the hands of the big operators.

Both Abbey and A&L have been been affected by the squeeze on credit, and have reduced the number of mortgage offers and pushed up the prices of these deals.

So what could this mean for customers of both banks?

How big a player is A&L?

The Leicester Building Society merged with the Alliance Building Society in 1985 to create A&L.

It is Britain's seventh biggest bank and had 7,000 employees at the end of 2007. Spanish giant Banco Santander has had its eye on a takeover for some time.

Under its plans, Santander would merge A&L with Abbey, which it bought in 2004.

Alliance saw its annual profits fall 30% last year amid turbulence in credit markets, which has forced it to write down the value of mortgage-backed investments by nearly 400m.

What has it done with mortgages?

A&L was one of the first lenders to drop 125% mortgages, which included a loan on top of the value of a home, that have now disappeared from the market entirely.

BBC business editor Robert Peston
It [Santander] wouldn't be taking on A&L's massive mortgage liabilities if it didn't see serious profit in financing the purchase of our homes
BBC business editor Robert Peston

Along with other lenders, interest rates for mortgages from both A&L and Abbey have been fluctuating.

Last week, Abbey reduced its rates on 75% loan-to-value fixed rate and tracker deals by up to 0.2% after recent rises in the cost of home loans.

A&L reduced the size of its mortgage book at the start of the year, concentrating on borrowers who were able to put down a large deposit.

At the end of April, it had 462,270 mortgage accounts, of which 2,650 were in arrears for more than three months.

I have an A&L mortgage. Will there be any change for me?

If the deal all goes through, you would not notice any difference with your mortgage.

You would make your monthly repayments in exactly the same way - although the Abbey branding may appear on correspondence.

It is extremely difficult to predict what will happen with the mortgage market in the coming months, although the BBC's business editor Robert Peston says that the approach shows Santander has confidence in the UK housing market.

"It wouldn't be taking on A&L's massive mortgage liabilities if it did not see serious profit in financing the purchase of our homes," he said.

In time, other products and services might be available to former A&L customers.

Spanish bank Santander has not been hit as hard as many UK banks by the credit crunch.

How would savers be affected?

Much the same as mortgage customers, they would see little change in the short-term if there was a takeover.

In the longer term, this could be good news for customers of both A&L and Abbey as a bigger bank could be more competitive and offer better interest rates for depositors.

A&L shareholders could also see some benefit, after seeing the value of their shares fall significantly recently.

The A&L board has agreed a price of one Santander share for every three A&L shares.

Are there any losers?

The potential losers could be staff, as Santander would be likely to try to merge some of the branches and administrative functions of the two banks to save money.

The Communication Workers' Union (CWU) says that it has "grave concerns" over the potential for a large number of job losses.

It adds that it has concerns that a merger between the two banks will "reduce consumer choice and raise important competition issues".

Darren Cook, of financial information service Moneyfacts, echoed the concerns over customer choice.

"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," he said.

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