24th Jun 2022 14:43
(Alliance News) - Barclays PLC's bid to improve its share of the UK mortgage market has raised some eyebrows, considering the bank faces tough competition in a home-loans arena where up to now it has been an also-ran.
Barclays shares were up 2.7% at 158.08 pence on Friday afternoon.
Barclays on Friday announced it is buying mortgage lender Kensington Mortgage Co Ltd to take a bigger share of the buoyant UK housing market.
Maidenhead, Berkshire-based Kensington is a specialist mortgage lender that provides residential home loans through brokers to people who might struggle to borrow from large high street banks.
The GBP2.3 billion purchase, subject to regulatory approval, "does represent an interesting strategic move, given most mainstream banks had moved away from specialist lending markets post the global financial crisis," said Gary Greenwood, research analyst at Shore Capital.
Kensington Mortgage's mortgage portfolio stood at GBP1.2 billion as at May 31, split 70% to owner-occupied properties and 30% in buy-to-let residential mortgages.
"The transaction should generate attractive returns for Barclays over the medium term as the Kensington Mortgage Co mortgage portfolio increases in size through the ongoing origination of new mortgages," said Barclays Bank UK Chief Executive Officer Matt Hammerstein.
Current trends would seem to support this.
The average house price in the UK increased 20% to GBP281,000 in April from GBP235,000 in December 2019, before the Covid pandemic hit, according to data from the Office for National Statistics. In London, the average house price has grown at a slower pace, by 9.5% to GBP530,000 in April from GBP483,922 in December 2019.
Historically, Barclays has placed less emphasis on specialist lending, focusing instead on credit cards, especially in the US, where former chief executive Jes Staley had made it a key component of his strategy to turn the bank.
Some commentators have questioned whether expanding into the mortgage market, where Barclays is relatively underdeveloped, is wise at a time when the UK could potentially fall into a recession amid a cost-of-living crisis.
According to Uswitch, Barclays ranks fifth among the UK's largest mortgage lenders, behind Lloyds Banking Group PLC, Nationwide, Banco Santander SA and NatWest Group PLC.
AJ Bell investment director Russ Mould commented: "Barclays fancies its chances as a bigger player in the residential mortgage market. The timing might seem a bit odd given cracks appearing in the property market.
"However, Barclays is clearly taking a long-term view, and its purchase of Kensington Mortgage together with a book of UK home loans is a logical strategic move."
By Arvind Bhunjun; [email protected]
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