New banks and mortgage lenders to vie for action: PRA

In the near future, more mortgage lenders could become banks, a director at the Prudential Regulation Authority has predicted.

Martin Stewart, director, banks, buildings and credit unions for the PRA, said that as more mortgage lenders became banks, he also expected to see some new banks enter the mortgage market.

He told a conference in London: “I do not envisage that all the new banks will become mortgage lenders. Many will identify opportunities in other markets, and that will remain their focus. Others will enter the mortgage market as start-up operations, bringing new propositions, products and technology to the market.”

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Mr Stewart added: “I would also expect a number of the non-bank lenders to become banks. Two have already taken this strategic decision, which is centred upon establishing greater diversity to the liability side of their balance sheets.

“We anticipate that a number of non-bank lenders will apply for banking licenses, but we would still expect to see both bank and non-bank mortgage lenders continuing to operate in the UK mortgage market.”

He noted that in its first two years the PRA will have granted 11 new banking licenses, compared with the 39 bank licenses granted by its predecessor the FSA between 2006 and 2012.

Mr Stewart added: “What has changed is the balance. Whereas the FSA granted less than 10 per cent of banking licences to new entrants, over one third of the licences granted by the PRA are to new entrants.”

He said he would expect to see five or six bank licences being granted each year for the next few years, of which between one-third and a half would go to new entrants.

Mr Stewart claimed that funding for new entrants to the banking world could also come from international investors, who were showing interest in the UK banking sector partly because of the strength and transparency of its regulatory regime.

Adviser view

Mike Pendergast, director of Chester-based Zen Financial Services, said: “It does make sense for mortgage lenders to become banks. They are more protected and able to cross-sell to banking clients.”