Why 'challenger' banks and specialist lenders are enjoying a growing share of the mortgage market

Posted 9 September 2016 by Nick Parkhouse

Some of Britain's lesser-known lenders are making inroads into the mortgage market with their choice of products and level of service...

While a handful of lenders continue to dominate the UK's mortgage market, a number of so-called 'challenger' banks and specialist lenders are starting to provide some much needed competition.

The likes of Aldermore, Metro Bank and TSB may not yet be in a position to challenge the likes of Halifax and Santander, but they are quietly growing their mortgage business through some great products and good service.

Metro Bank and Aldermore lead 'challenger' mortgage growth

Challenger banks and specialist lenders enjoyed a strong 2015. According to the Council of Mortgage Lenders (CML), they grew their gross lending by 56% last year, compared to banks who grew their gross lending by 4% and building societies who grew by 9%.

Leading the charge are Aldermore, who entered the UK market in 2009, specialising in first-time buyer and buy-to-let mortgages. The bank recently reported pre-tax profit of £59m for the first half of 2016, up 50% from the previous year’s £40m.

Mortgage expert Alan Lakey says: "Aldermore fills a very valuable niche in the market. Most lenders put a 70 or 75 age limit on buy-to-let, which, although a mortgage, is actually an investment. Aldermore has an age limit of 85 and operates in a far more sensible manner.”

Shawbrook Bank, which specialises in professional buy-to-let, entered the market in April 2011 and by the end of 2015 the property finance element of the balance sheet was £2.1bn. Fleet Mortgages, a buy-to-let specialist that entered the market in January 2015, already has £520m of loans under management.

A better-known name - mainly thanks to its 42-strong branch network - is Metro Bank. Metro entered the mortgage market in 2014 and increased its book for mortgages and other loans by 125% to £4.1bn over the year to 31 March 2016.

With ambitions to cover the country and open a further 70 branches, Metro looks to be one of the bigger new players, alongside TSB which split from Lloyds in 2013. By the end of 2015 TSB was already claiming to be the eighth-largest player in the intermediary market for new business.

New banks face a big challenge to rival existing players

While these big names are growing quickly, experts say that it will take years for them to rival the big players. The most recent CML gross lending data, for 2015, shows Lloyds Banking Group to have the largest market share at 17.5%, followed by Nationwide at 13.9%, Santander at 11.9%, Royal Bank of Scotland at 11.2% and Barclays at 8.6%.

Virgin Money was in eighth place with a 3.4% market share, while One­Savings Bank, TSB and Aldermore had between 0.6% and 2.2%.

Mortgage expert Ray Boulger told Mortgage Strategy: “It’s certainly a possibility that Virgin, TSB and Tesco could catch up with some major lenders on new-business volumes, but they will not manage it in much less than 10 years.

"It would be hard for them to increase lending by more than 20% a year but I feel they could increase it by a bigger percentage than the market as a whole, whereas the very big players are likely to grow more in line with the market.”

4 May 2016
Tightening Bank of England regulations to lenders have started having an effect on the criteria that buy-to-let investors must meet to qualify fo...Read more
Mortgages & Homes
27 January 2015
Downsizing continues to be the key driver of property movesaccording to the latest Downsizers Report from Lloyds Bank. With over half (52%) of ho...Read more
Mortgages & Homes
30 September 2014
The government continues to push schemes aimed at encouraging more new homes to be built and to help more people onto the housing ladder, particu...Read more
Mortgages & Homes

Click here to see your activities