The Nationwide and Portman building societies today unveiled plans to merge, in a move that will create the largest UK mutual and will be the biggest such tie-up on record.

The enlarged society, which will be named Nationwide Building Society, will have assets of about £150 billion and will be both the second-largest savings provider and the number-two mortgage lender in Britain.

The merger, which will see the society more capable of taking on heavyweight banking rivals such as HBOS and Lloyds TSB, is expected to become effective by the end of September 2007.

It is still subject to approval from Portman members and the Office of Fair Trading, and confirmation by the Financial Services Authority.

If it completes, Portman's 1.8 million members can look forward to payouts of £200 each. They will also be transferred on to Nationwide's mortgage book in what is expected to save them £500 a year in interest repayment costs.

But job losses will also be involved. Philip Williamson, the chief executive of Nationwide who will be leaving as a result of the merger, said: "Inevitably when you merge two large organisations there are overlaps such as the head offices, some administrative function and the branch network.

"Therefore, some job losses are inevitable but we need to complete a detailed review of both operations and consult with employees and the unions before we can say exactly what is happening.

"Between now and September next year there will be a natural turnover of staff so we are hoping that the number of compulsory job losses will be relatively low."

As they unveiled the merger plans, driven by Nationwide and worked on for several months, both groups stressed that Nationwide Building Society would continue to operate as a mutual following the takeover and that no plans were underway to change its status.

The combined group will operate from more than 880 locations in the UK.

Nationwide has been a robust advocate of the mutual structure, where societies are owned by their members, and Portman has echoed this commitment. However, a spokesman for Nationwide acknowledged that the merger plans in part came about as a result of pressure on mutuals and the highly competitive landscape for financial services.

A new chief executive in the form of Graham Beale, Nationwide's current finance director, is to take charge once the merger is complete. Mr Williamson will retire at the end of March.

Robert Sharpe, the current head of Portman, will leave on completion of the merger.

Mr Williamson, 59, who has previously signalled he would not stay on once he reached 60, said the merger was "great news for members of both societies".

He said: "As a result of the merger, 13 million people will be members of a bigger and even better society, offering market-leading products and pricing, underpinned by a strong commitment to mutuality.

Mr Sharpe said: "If building societies are to continue to compete successfully with the retail banks, they need to enjoy comparable economies of scale."

Portman members will have access to current account and credit card products not previously available to them, while Nationwide members will have access to a new range of wealth management and financial planning services.

Analysts at Keefe, Bruyette and Woods said the merger benefits to Portman members would be modest, adding: "While it expands the product range across a wider customer base, and there should be modest cost savings, we do not see this as changing any dynamics in the market."

Mark Thomas and James Hutson, banks analysts at KBW, pointed out that Nationwide is six times the size of Portman and that the share of the mortgage market taken up by the combined group would not change dramatically.

Nationwide Building Society will retain about half the mortgage share of HBOS, although it will capture slightly more than Lloyds TSB, they said.

However, with Lloyds TSB carrying assets of £310 billion, and HBOS £570 billion, together with their large corporate lending businesses the two banks will still dwarf the enlarged Nationwide group.