Yorkshire and Chelsea building societies are planning a merger that has just been approved by both sets of members.

If the formalities go ahead, the resulting building society will be the UK's second largest after Nationwide, with combined assets around £35bn.

Yorkshire BS currently occupies the #2 spot on its own, with 2 million members, while Chelsea is #4 on the list largest with approximately 700,000 members.

Why are the two societies merging?

According to a Chelsea spokesperson, simply as part of a "strategic review" — to plan for the future, that sort of thing. Although according to Mike Davies, head of mortgages at Skerritt Consultants, "both companies have not been able to lend as much as they want to and will need to merge to continue functioning."

The new society will also include Yorkshire's dormant specialist lender, Accord Mortgages.

As with most mergers, we're not expecting anything particularly exciting to happen as the deal is trodden out, but it's predicted the process will be complete by April 2010. If they do decide to change the name to Yorksea or Chelshire, we'll let you know.

More January sales on mortgages as Yorkshire Building Society cuts interest by up to 0.60% 

They must mean it when they say there are "signs of an increase in activity in the housing market", because Yorkshire Building Society are looking to welcome in thousands of new borrowers with a radically discounted mortgage line-up.

As well as across-the-board cuts in their interest rates, they've paid attention to mortgage product fees too: at £495 (or in some cases £0), chief executive Iain Cornish thinks their below-average fees could "help to make a big difference to customers". At a time when most competitors charge around £1,000, he's not kidding.

Highlights of the rate-cutting bonanza include:

• a 3-year fixed rate of 4.39% (≤75 per cent LTV, £495 fee) — that's 0.50% off the previous rate
• a 2-year tracker mortgage rate of 2.64% (BoE + 2.14%, ≤75 per cent LTV, £495 fee)
• Yorkshire BS's lowest ever fixed rate mortgage at 3.19% (≤75 per cent LTV) — only for 1 year, but the fee's just £195

The three-year option there is one of the best rate / fee packages on offer for borrowers with a 25 per cent deposit.  Remortgage customers get free legal and valuation fees, and all borrowers can take advantage of overpayments, underpayments and payment holidays.

Following our recent story about building societies raising their standard variable rates, it's good to see Yorkshire Building Society getting attention for setting a different and more mortgage-friendly trend.