Metro Bank buys £600m of buy-to-let mortgages to boost growth

Metro Bank has bought nearly £600m of buy-to-let mortgages from US private equity group Cerberus as the UK challenger bank attempts to boost growth amid mounting competition in the market.

The portfolio, which is made up of 92 per cent buy-to-let mortgages and the remainder owner-occupied, was acquired at a slight discount to book value, although Metro Bank did not disclose the figures.

The bank, which launched on to UK high streets in 2010 with its flagship red and blue stores, said the buy-to-let mortgage book was spread across the UK and fitted in with the risk level of its current lending portfolio.

Metro is seeking to accelerate its growth and achieve scale in the UK as competition from other new lenders heats up.

A number of challenger banks and specialist lenders have launched over the past few years, with some of them, such as TSB and Virgin Money, vying for a share of the residential mortgage market.

Craig Donaldson, chief executive of Metro, said the acquisition increased the bank’s loan to deposit ratio to about 78 per cent, closer to its 2020 guidance of about 80 per cent.

He said: “The portfolio complements our existing mortgage book and demonstrates our willingness and ability, helped by our strong deposit growth, to take advantage of opportunities as they arise.”

Metro Bank said in its first-quarter earnings in April that it had increased profit by a third, reporting a pre-tax figure of £2m in the three months to the end of March, but noted a drop in its loan-to-deposit ratio.

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Joseph Dickerson, an analyst at Jefferies, said the mortgage acquisition helped Metro to put its excess deposits to work, boosting its loan book by nearly 10 per cent to £7.1bn. However, he added that the deal was “incremental as opposed to transformational”.

Jonathan Goslin, an analyst at Numis, said that “low-yielding mortgages will do little to cover the group’s very high cost base”. He also questioned “whether it is the right decision to be acquiring a portfolio of BTL mortgages at this point in the cycle”.

Although Metro bank is winning deposits through its focus on customer service, helped by the prime location of its stores on street corners, the lender is under pressure to channel these into loans.

The bank struck a deal with peer-to-peer platform Zopa a couple of years ago to lend some of its customer deposits through the site in return for interest.

Metro is set to open 10 new stores this year, despite the expense of running branches as other banks continue to shrink their networks. Operating expenses are increasing at an annual growth rate of 26 per cent, the bank said in its last set of results.

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