"Consolidation presents a compelling opportunity to deliver incremental profitability independent of market growth."
Charter Court Financial Services has confirmed that it is in "advanced discussions" with One Savings Bank over a potential £1.6bn merger.
Under the proposed terms, OSB shareholders would own approximately 55% and Charter Court shareholders 45% of the new group.
It is proposed that Andy Golding, currently CEO of OSB, will become CEO of the combined group.
The Boards of both lenders said the merger would create "a leading specialist mortgage lender in the UK" and would allow it to expands its product capabilities.
In a statement, Charter Court said the new group would maintain two independent broker distribution platforms offering an enhanced proposition to the broker market.
Nick Field, director at international mid-market M&A firm, Livingstone, commented: "As both OSB and Charter Court have attractive net interest margins around 3%, a track record of good quality growth, and strong positions in specialist products we see this as largely a merger of equals, which is reflected in the all-share deal structure.
"Because both businesses lend across a relatively full range of specialist products and have each invested to develop both retail and wholesale funding capabilities, we would expect operating costs to be the primary area of short-term synergy opportunity.
"As the UK specialist finance market is undoubtedly experiencing some reduction in demand arising from economic uncertainty, consolidation presents a compelling opportunity to deliver incremental profitability independent of market growth."