The housing downturn is likely to trigger an increase in mergers among building societies, as bad debts from mortgages rise and profits fall, according to KPMG, the financial services company.

The KPMG Building Societies Database 2008, due out this week, says that while the 59 remaining societies have 'weathered the storm comparatively well so far...the second longer and slower paced round of the credit crunch is now under way... [and] this poses more problems for societies.'

Richard Gabbertas, financial services partner at KPMG said: 'It’s inevitable there will be some more consolidation as market conditions worsen.

'Given the consolidation in the banking sector it would be surprising if there wasn’t more in this sector.'

Building societies do not have recourse to equity funding like bank rivals, making them far more reliant on savings income, which typically declines in an economic downturn.

Financial Times