Taylor Woodrow and George Wimpey have agreed to merge to form the UK's largest housebuilder with a market value of around £5bn.

The new company, to be called Taylor Wimpey, will have a place in the FTSE 100 index and will be 51% owned by Taylor Woodrow shareholders and 49% by Wimpey’s.

The nil-premium, all-share deal is the biggest to date in the UK's fast-consolidating housebuilding sector and raised hopes of more to come.

‘The Wimpey/Taylor Woodrow deal makes good sense to me. It's a good strategic fit and the synergies they're targeting look realistic,’ said Numis analyst Colette Ord. She tipped Redrow as the next bid target and Persimmon as a possible buyer.

Taylor Wimpey will build around 22,000 homes in Britain each year, giving it a market share of about 12%, just ahead of Barratt Developments' which announced an agreed deal to buy Wilson Bowden for £2.2bn last month. It will also build 9,000 homes in North America.

The deal will allow the companies to save costs in their US operations amid a downturn in that market. The pair said they expected to cut around 5% of the combined 14,000 work force, or about 700 jobs, with most of those losses in the UK.

Wimpey chief executive Peter Redfern will lead the new company, with Taylor Woodrow's Peter Johnson as finance director. Taylor Woodrow chairman Norman Askew will retain his job, but his chief executive Ian Smith, who only took up his post in January, will leave.

Taylor Wimpey will have a UK landbank of 92,000 plots. ‘Taylor Woodrow has a very strong land history and a very strong land skill, George Wimpey has a very efficient cost structure,’ Redfern said. ‘You put the two together and you have a very, very compelling UK housebuilder.’

UBS and Morgan Stanley advised Taylor Woodrow on the deal, while JP Morgan Cazenove acted for Wimpey.