The proposed merger between Nationwide and Virgin Money is to be investigated by the UK’s competition watchdog.

The country’s biggest building society announced the £2.9bn deal with its smaller rival in March.

It is the largest banking merger since the 2008 financial crisis and create the UK’s second-largest provider of mortgages and savings.

The Competition and Markets Authority (CMA) said it will examine whether it would result in a substantial lessening of competition within the UK banking sector.

The takeover would result in a combined group with 700 branches, second only to Lloyds Banking Group.

The combined assets of the groups would total roughly £366.3bn.

Virgin Money is now the UK’s sixth largest retail bank with around 6.6 million customers, while Nationwide has nearly 18 million customers.

When the deal was struck, Nationwide said it would not make any material changes to Virgin Money’s 7,300 employees “in the near term”.

It said that it would keep using the Virgin Money brand initially but it would be phased out over six years once the proposed takeover is completed.

Last week, Virgin Money shareholders voted in favour of Nationwide’s offer, despite concerns from some investors that the takeover might “sell shareholders very short”.

The CMA has set a 40-day deadline for the first phase of its investigation.

In this initial period, the CMA will evaluate whether the transaction constitutes a “relevant merger situation” and if it could lead to a substantial lessening of competition.

The CMA is inviting comments from any interested parties, with the consultation period closing on 14 June.

The outcome of this investigation will be crucial in determining whether Nationwide deal with Virgin Money can proceed without modifications or if further scrutiny and potential remedies will be required to preserve competition in the market.