Pepper Money has agreed terms to buy second charge lender Optimum Credit.
The purchase remains subject to regulatory approval but will see Pepper buy the second charge lender’s entire business from current owner Patron Capital - including a loan book of more than £450m.
A Pepper spokesman said Optimum will continue to be second charge mortgage orientated, expected to use existing funding methods including public capital markets issuance.
Pepper Money entered the mortgage market in 2015 and only operates through intermediaries - targeting those borrowers experiencing difficulty getting a loan with high street banks and building societies.
Last month, the lender announced its intention to apply for a banking licence, having started discussions with the Prudential Regulation Authority and the Financial Conduct Authority.
Laurence Morey, chief executive at Pepper Money, said: "I am pleased to welcome the market leading team at Optimum Credit into the Pepper Money family.
"We are looking forward to how this acquisition will enhance the growth of Pepper Money’s intermediary led secured lending proposition and are excited at the prospect of supporting the Optimum Credit team in the continued development of their unique proposition supported by excellent systems and intermediary relationships in an exciting market segment."
Sam Marshall, chief executive at Optimum Credit, said the two lenders shared a similar development journey.
He said: "We share a common culture and entrepreneurial approach with the intermediary and UK residential property owner at the core of our proposition.
"This acquisition will give Optimum Credit access to a wider range of resources and shared expertise that will enhance our business and enable our continued growth."
Last week, figures showed the second charge mortgage market in the UK had continued to grow in August - for the sixth month so far in 2018 - despite previous concerns from the FCA .