A leading business advisory firm, Deloitte, has predicted that at least five building societies will disappear in 2007, as financial firms are forced to get fitter and leaner to survive.

Deloitte said that building societies need to see the “stark reality” of the challenge facing them in the UK investment arena and that they need to “focus sharply” on their customers if the mutual sector is to survive.

The end of 2006 will have seen three societies disappear – the Mercantile, Universal and Lambeth – after mergers with Leeds Building Society, Newcastle Building Society and Portman Building Society. Portman itself will probably go in 2007 after a merger with Nationwide.

Stephen Williams, head of the building societies team at Deloitte, said: “In the wake of Nationwide’s takeover of Portman, we predict a further five mergers in 2007, as struggling building societies look for ‘white knight’ merger partners.”

The number of building societies has dwindled in recent years. In 1986 there were 151 offering mortgages and saving and investment products to UK consumers, but this fell to 77 by 1996 and stands at 60 now.

A spokesperson for the Building Societies Association said: “Further consolidation cannot be ruled out, but this does not represent a weakening of the sector; the assets and members of the merging societies remain within this important mortgage, saving and investment sector.”