Starling grabs £500m mortgage pound as replacement for Covid loans

Starling Bank has agreed to acquire a mortgage portfolio worth around £500m as the digital challenger tries to expand its assets beyond Covid-19 loans.

The start-up, founded by Anne Boden in 2014, is buying the loan portfolio from the specialist lender Masthaven, according to sources familiar with the matter.

The acquisition will help Starling, which counts Jupiter Asset Management and Goldman Sachs among its investors, diversify lending away from the government-backed Covid-19 loans that make up most of its assets.

The bank’s latest accounts at the end of June show it lent a total of £2.3billion, including £2.2billion in rebound loans and the business interruption loan scheme. coronavirus activity. However, concern is growing about the extent of potential fraud linked to bounced loans and the degree of banks’ exposure to bad debts.

In an attempt to diversify, Starling made an offer for other loan books. It acquired Fleet Mortgages in July last year for £50m in cash and shares. The Hampshire-based company focuses on lending to professional homeowners through financial advisers.

It emerged earlier this year that Starling was also in the running for a £1billion mortgage book sold by specialist lender Kensington, pitting the challenger against Barclays.

Starling has been in the spotlight in recent weeks after Lord Theodore Agnew claimed it was one of the worst banks at preventing fraud in government emergency loan schemes.

Some banks offered rebound loans of up to £50,000 during the pandemic to struggling small businesses and the Treasury pledged to cover losses if borrowers failed to repay.

The National Audit Office estimated that around £5bn of the £47bn loaned out under the scheme could be fraudulent, although it warned that this forecast was uncertain.

Lord Agnew resigned as the government’s anti-fraud minister in January, complaining that the government had poor oversight of the bounce-back loan scheme in particular. Last month, he pointed the finger at Starling, saying the bank had acted against the interests of government and taxpayers. Starling had only loaned out £23m in November 2019. By June 2021, he had handed out £1.6bn in rebound loans.

The bank has denied Lord Agnew’s claims and asked the Tory peer to withdraw them.

Masthaven’s mortgage sale process follows its announcement earlier this year that it was withdrawing from the UK banking sector. The lender, which acquired a banking license in 2016, said it made the decision after realizing a “significant” amount of long-term capital was needed for its future growth plans.

Starling and Masthaven declined to comment.

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