Business & Finance

Barclays Spends $2.8 Billion to Beef Up Mortgage Business

Barclays Spends $2.8 Billion to Beef Up Mortgage Business #Barclays #Spends #Billion #Beef #Mortgage #Business Welcome to Lopoid

Barclays

BCS -4.73%

PLC went deeper into the U.K.’s competitive home-loan market with a $2.8 billion deal Friday to buy specialist lender Kensington Mortgage Company Ltd. from

Blackstone Inc.

BX 2.29%

and Sixth Street Partners.

The British bank said it would acquire a roughly $2.4 billion loan portfolio and a servicing business for Kensington’s target clientele of self-employed and other people with unconventional credit profiles. 

Blackstone and Sixth Street bought Kensington from South African bank

Investec PLC

in 2014 for around $300 million. Kensington’s business model has been to securitize its mortgages and issue bonds to investors, while Barclays said it intends to keep the loans on its books.

Mortgages are a key business for the U.K.’s heavily regulated banks, which can only use their local deposits in the country, under so-called ringfencing rules that ban the customer money from funding investment banking or overseas activities. In recent years, the country’s biggest banks, including Barclays, have grabbed market share from smaller lenders as a result. 

Barclays said the purchase would let it reach more customers and “better utilize our strong U.K. funding base.”

Rising interest rates are boosting revenue from mortgage lending. Barclays in April said first-quarter revenue rose 5% in its U.K. arm from higher net interest income on its growing mortgage book. Mortgage balances were around $196 billion at the end of March. 

The flip side is that the U.K. economy is cooling and borrowers are getting strapped by higher inflation and the rising rates. 

Bank of England officials also have warned that the U.K. mortgage market got more concentrated among the large banks because of the ringfencing rules, which brought down borrowers’ costs but means banks have less wiggle room for losses if the market turns. Recent data show house prices are still rising, but at a slower rate. 

U.K. regulators strengthened rules around mortgages after the financial crisis, which almost toppled two of its biggest banks. The Bank of England recently withdrew a rule that made banks test how borrowers would cope with rising rates. It kept a limit on banks’ proportions of home loans to the most stretched borrowers.

Kensington lends to nonmainstream customers who are in charge of their own earnings or have multiple income streams.

Write to Margot Patrick at margot.patrick@wsj.com

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