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Barclays is to buy the specialist mortgage lender Kensington Mortgages for £2.3bn, in a dash for mortgage books as interest rates rise.
The acquisition comes at a time of intense competition in the mortgage market, and as rising interest rates provide a boost to lenders.
Kensington is being sold by its private equity owners, Blackstone and Sixth Street. The sale comes after an auction process that attracted interest from a number of bidders.
Kensington focuses on the self-employed and those with variable incomes, segments that leading banks often do not serve. Its customers include first-time buyers, older borrowers and people with multiple sources of income. The business, which is based in Maidenhead and has about 600 employees, services approximately £8.7bn of third-party mortgages in addition to its own mortgage portfolio.
Barclays said the final price would depend on the size of Kensington’s mortgage portfolio at the time the deal completed. The bank estimates it will comprise about £2bn worth of home loans by the anticipated December completion date.
The Jefferies analyst Joseph Dickerson said: “We think this transaction will add capabilities for Barclays in specialist mortgages and will be accretive to the UK business.”
UK house prices have continued to rise in the past few months despite the worsening cost of living crisis, but industry experts expect the market to cool later this year. Interest rates have been climbing as the Bank of England tries to tackle soaring inflation, which hit a 40-year high of 9.1% in May. The central bank lifted rates by a quarter point to 1.25% last week, and is expected to raise borrowing costs further in the coming months.
The Barclays deal is the latest as banks race to buy up mortgage books. Last week, Starling Bank agreed to buy a mortgage loan portfolio from the specialist lender Masthaven worth £500m. Last July, Starling – a challenger bank – bought the specialist buy-to-let lender Fleet Mortgages for £50m, its first ever acquisition. It gave Starling a mortgage book worth £1.75bn.
Dickerson said this has been happening for some years now, pointing to Metro Bank’s £3.1bn acquisition of a residential mortgage book from NatWest Group in 2020 as an example, with limited supply on the market. “This particular transaction seems more about capability than scale,” he said about the Barclays deal.
Russ Mould, the investment director at AJ Bell, said: “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 Mortgages together with a book of UK home loans is a logical strategic move.”
Matt Hammerstein, the chief executive of Barclays Bank UK, said: “The transaction reinforces our commitment to the UK residential mortgage market and presents an exciting opportunity to broaden our product range and capabilities. KMC is a best-in-class specialist mortgage lender with an established track record in the UK market, strong broker and customer relationships and data analytics capabilities.”