Chesham Building Society yesterday fell prey to the ongoing economic slump, after it agreed to be taken over by the much larger Skipton Building Society.

Net interest income, revealed by Skipton, fell almost 40 per cent from £87.5m to £53.3m as the impact of low interest rates took its toll.

This came after Skipton raised the standard variable rate on its mortgages last month from 3.5 per cent to 4.95 per cent, breaking a promise to keep the rate at a maximum premium of 3 percentage points over the base rate.

“We earned very little on our reserves and the retail market is highly competitive, which has increased the cost of funding relative to the base rate”, said Chief Executive David Cutter.

Its proposed merger with Chesham will add about £200m of assets to its balance sheet.

Skipton has pledged to retain Chesham's three branches, in Buckinghamshire, for 12 months from the date of the merger. After the completion of that time period, however, they will become subject to Skipton's "ongoing branch review" process.

Also, there will be no compulsory redundancies among branch staff of Skipton, and Chesham members will have access to Skipton's network after the deal completes.