Alliance and Leicester (A&L) has accepted a take-over bid from Banco Santander, a finance company in Spain and Latin America, for approximately £1.2bn.

The Spanish bank, which already owns Abbey, looks set to massively increase its share of the UK mortgage market. It hopes that the acquisition will be completed in October although permission still needs to be granted by both the Financial Services Authority (FSA) and the Bank of Spain. If it is approved, A&L’s shareholders will receive one Santander share for every three A&L shares.

Santander hopes that through combining the business of Abbey and A&L it will be able to increase its efficiency and reduce its overall running costs therefore allowing it to reduce A&L’s high cost of funding. It is also hoped that the purchase may bring some stability back to the UK financial market as the bank has access to European money markets through a line of credit with the European Central Bank which was previously unavailable to A&L.

Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), said: “This potential deal represents positive news for the UK mortgage market. It is pleasing that a global player like Santander is willing to invest more capital in the UK at this time. It should provide much needed stability for the marketplace and a reassurance about the strength of the mortgage industry in this country.”