‘Challenger banks’ taking mortgage business from the big players as competition grows

One of the UK's biggest mortgage lenders has reported that its share of the UK mortgage market fell in 2015, partly through increased competition from other banks and building societies.

Nationwide reported that its share of net mortgage lending fell by around 7% in the nine months to December as a number of small 'challenger banks' start to take mortgage business from some of the High Street's high profile names. It has reported that it provided 22.3% of net mortgage lending in the nine months to the end of December 2015, a fall of 7.2% from 29.5% it boasted a year earlier.

Increased competition has buoyed the mortgage market, with borrowers now able to take advantage of some ultra-competitive rates from a range of so-called 'challenger banks' which are on the rise.

Mortgage expert Ray Boulger told the Financial Times: “Challenger banks are now taking a larger percentage of net lending. This is partly because they will have fewer mortgages redeemed compared to the big banks.”

Examples of these banks include TSB - formerly part of the Lloyds Banking Group - and HSBC, both of which have struck deals with mortgage brokers in order to offer their products through independent advisors as well as their branches. The Post Office is another lender that has seen its market share rise, mainly thanks to some very competitively priced deals.

Other banks such as Metro Bank, Virgin Money and Clydesdale have set their sights set on stealing customers from the established high-street lenders, both in terms of current accounts and mortgages. Virgin boss Jayne-Anne Gadhia has argued that these challenger banks have also benefited borrowers by driving down the cost of mortgages.

New and niche lenders offer something different

While some banks are challenging the big names on the High Street, others have been hugely successful by concentrating on less mainstream products.

For example, Shawbrook, Aldermore, Paragon and OneSavings Bank - hardly household names - specialise in areas such as buy-to-let lending.

“These specialist challenger banks have been such a success because of their deliberate focus on under-served markets,” says banking analyst Ian Gordon at Investec.

Building societies have also benefited from the turmoil in the mortgage market since the global financial crisis in 2008.

The Daily Telegraph reports that some of the UK's traditional mutuals have expanded rapidly since the recession, “at first taking advantage of the big banks’ absence from the market and now competing hard for business, particularly in the mortgage market”.