Barclays PLC (LSE:BARC) will increase its loan book in the residential mortgage market this year, after agreeing to buy UK lender Kensington Mortgages, which could put it on a firmer footing to contend with market leaders such as Lloyds Banking Group PLC (LSE:LLOY).
The UK mortgage sector has traditionally been dominated by five major lenders, with Lloyds historically taking the biggest share of the market.
In 2020, 10 mortgage lenders in the UK accounted for 84% of the market, with the top five players taking a combined market share of nearly two-thirds, according to Statista.
Barclays' share of the mortgage market was 9.5% in 2020, putting it among the big five lenders in the UK market as the fifth-biggest lender in the space.
Lloyds took the greatest share of the UK mortgage market that year at 19.5%, making the bank the dominant player in UK mortgage lending.
But that could be about to change after Barclays agreed to a deal this week that will expand its share of UK residential mortgages by up to £2bn.
Barclays said today that it is positioning itself to increase its market share, after agreeing to acquire Kent-based mortgage lender Kensington Mortgages from Blackstone and Sixth Street for £2.3bn.
The price Barclays agreed to pay for the lender is about £300mln more than its estimated book value for December.
A £2bn increase in mortgage book value alone is unlikely to see Barclays directly contend with top player Lloyds this year, but the bank has stated a clear intention to expand its activities in the UK mortgage market.
“The acquisition will enable Barclays to broaden its product offering and capabilities in the UK mortgage market, extend the number of customers we can serve and grow mortgage originations to better utilise our strong UK funding base,” the bank said in a regulatory statement.
Matt Hammerstein, chief executive of Barclays' UK business, said the deal reinforces the bank’s commitment to the UK residential mortgage market.
The Barclays Bank UK CEO said that Kensington Mortgages, which held a loan portfolio of £1.2bn on 31 May, “complements” the bank’s existing mortgage business and “strong UK funding base”.
Barclays issued £33.9bn of new mortgages in 2021, when an overall decrease in its book size was partially offset by nearly £10bn of annual growth in its UK mortgage business, bringing its mortgage loan book to about £158.1bn by the end of the financial year, according to its annual results.
The bank has now stated its intention to boost capacity in the residential mortgage lending sector, where Kensington provides mortgages to people on variable incomes.
Lloyds’ mortgage loan book was worth £293.3bn for the last financial year, up 6% over the year, marking its strongest growth in the sector in more than a decade, it said in its results statement in February.
The Barclays deal was agreed after the Bank of England relaxed stress testing requirements for mortgage lenders this week in an effort to contain indebtedness and prevent another credit crunch following the 2007 crash.
The Bank of England triggered the starting gun for increased mortgage lending this month by relaxing stress testing rules imposed to prevent a repeat of the 2007 credit crunch.
On Tuesday, the bank’s financial policy committee said it would withdraw its affordability test recommendation on 1 August following a consultation this February.
The affordability test for lenders was introduced in 2014 to require them to assess borrowers’ ability to repay mortgages.