The deal, a mixture of cash and shares, will see Starling inherit £1.75bn in mortgages under management.
All future loans through Fleet will now be originated by Starling, whose deposit base has grown to more than £6bn.
But Fleet’s existing management team will remain in place and it will continue to operate as a stand-alone company, keeping its original name and brand.
The UK challenger bank said the acquisition was part of “a wider plan” to expand its lending “through a mix of strategic forward-flow arrangements, organic lending and targeted M&A activity”.
Anne Boden, Starling’s chief executive, called the acquisition the start of its move into mortgages as an asset class.
“It builds on a number of forward-flow arrangements that we’re doing with leading non-bank lenders,” she continued.
“We’re buying Fleet because it is very good at what it does, not because we want to change it."
Fleet claims to have originated £2.3bn of mortgages since its inception in 2014 and to have experienced “zero credit losses”.
The start-up lender’s chief executive, Bob Young, previously managed incumbent lender CHL Mortgages.
Young said the deal was particularly beneficial for Fleet because it “reduces [the] cost of funds”, allowing its products to be more competitive.
'Planting a flag'
Martin Stewart, a director at broker network The Money Group, told FTAdviser: “This is a very interesting move and one that the wider industry would be foolish to ignore.
“This is a modern, forward-thinking challenger bank planting a flag in the intermediary lending world.”
Starling had lent just £54m when the pandemic hit. But after the introduction of the government’s various coronavirus loan schemes, this figure shot up to £2.2bn, according to the FT.
The bank is the second firm to buy a specialist buy-to-let lender in the UK this month. Foundation Home Loans was acquired by Athene Holding, a Bermuda-based retirement firm providing annuity products in the US.
Two UK-based digital brokers were also acquired this month by US-backed firms - RVU bought Mojo Mortgages and Better, a stateside digital mortgage broker, intends to enter the UK market through its buyout of Trussle.
"There are clear trends which show the competitive landscape in the mortgage market is heating up significantly," Stuart Cheetham, co-founder and chief executive at data-driven mortgage firm MQube, said.
"Technology is the way forward, but it is important that this is combined with mortgage market expertise. It is not always straightforward for technology companies to buy into the market, and sometimes the best option is the development of a fresh proposition from scratch that mixes both cutting-edge technology with mortgage experience.
"The move to utilise the best and latest technology is at the heart of these acquisitions and incumbent brokers and lenders need to be at the forefront of digital change or risk being left behind.”
From acquisition to IPO
Back in April, Starling landed a £50m investment from Goldman Sachs' growth equity arm.
The capital injection took the bank’s Series D round, announced in March, to £322m, and gave it a pre-money valuation in excess of £1.1bn.
Starling is also set to be a beneficiary of the Banking Competition Remedies’ Incentives Switching Scheme, which is in the process of distributing £29.6m in underspend.
Having made its first profit in October 2020, Starling has previously said it is eyeing a potential initial public offering as early as 2023.
The fintech currently boasts more than 2m current accounts on its platform, including 350,000 business accounts.
ruby.hinchliffe@ft.com
