Wider distribution channels have always been the holy grail for mortgage lenders but never so much as now. In a time where consolidation and changes in the regulation of brokers seems to be putting the squeeze on much of the industry, deals between lenders are keenly in the spotlight.
Enter Kensington Mortgages, who last month struck a deal that bought them a minority shareholding in Money Partners Limited, which it has launched as a new sub-prime lender. Kensington says the deal not only gives it access to different distribution channels and the second-charge mortgage market but it also gives it the chance to acquire the remainder of the new lender over the next four years.
So in a time of massive consolidation, what is the rationale behind launching a new lender in the same marketplace where you already have a good name?
Kensington chief executive John Maltby says the decision to expand in the non-conforming market, rather than diversify, is due to Kensington's confidence in its sub-prime ability.
He says: “MPL will be an equity partnership between Kensington and an experienced management team and we expect the initiative to add significant, incremental first and second-charge mortgage business to Kensington, broadening access to the high-growth UK non-conforming market and maximising the value from our established expertise in this area.”
The launch of Money Partners comes at a time when Kensington is celebrating a 46 per cent increase in profits in the first half of 2004. New business volumes are more than £1bn and the mortgage portfolio now stands at £3.5bn.
Maltby says: “We are clearly a leader in a growing sector and Kensington has been very successful in acquiring firms such as The Mortgage Lender a couple of years ago. We have good distribution and the service that Kensington offers is well known. We have managed the risk management side well and arrears and losses remain low. Our mortgage book grew by 50 per cent last year.”
Launching a new lender so close to M-Day could be seen as a risky move but Maltby says Kensington has been getting ready for more than two years. He says: “We are very confident about our readiness. The level of reporting required has already been achieved And proven in our securitisation deals. The transition to regulation will be relatively straightforward for us.
“We believe that mortgage regulation will reduce the number of intermediaries operating in the UK market and will also lead to further consolidation in other parts of the distribution market. We believe this should work in favour of Kensington due to its multi-channel distribution model and Money Partners is part of that strategy.”
Maltby says, with Money Partners, Kensington will continue its policy of careful and disciplined risk management. It aims to avoid high LTV lending and has maintained average income multiples well below the industry levels at 2.5 times primary borrower's income. Maltby says Kensington will continue to lend on quality properties while avoiding concentration in higher-risk areas of the housing market.
Maltby says, like Kensington, Money Partners' will future trends in the housing market depend upon three things – interest rates, unemployment and regulation.
He says a rise in interest rates could take the heat out of the market while an increase in unemployment could have a dampening effect.
However, while rate and unemployment both remain relatively low, there is still potential for growth although there could be problems in London and the South-east.
Maltby says Kensing-ton's focus remains on disciplined and sustainable growth to deliver a well managed, high-quality portfolio of mortgage assets.