Starling Bank, a start-up, founded by Anne Boden in 2014, has agreed to acquire a mortgage book worth about £500mn as the digital challenger attempts to broaden its assets beyond Covid-19 loans. It is buying the loan portfolio from specialist lender Masthaven, according to people 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 constitute most of its assets. The bank’s last accounts show it has lent a total £2.3bn, of which £2.2bn is bounce back loans and the coronavirus business interruption loan scheme.
However, concern has been mounting over the extent of potential fraud in relation to bounce back loans and how much exposure banks have to bad debt.
In an attempt to diversify, Starling has been bidding for other loan books. It acquired Fleet Mortgages in July last year for £50mn in cash and shares. It emerged this year that Starling was also vying for a £1bn mortgage book being sold by specialist lender Kensington, pitting the challenger against Barclays. Starling has come under the spotlight in recent weeks after Lord Theodore Agnew claimed it was one of the worst banks for preventing fraud in the state’s emergency loans schemes.
Certain banks offered bounce back 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 has estimated about £5bn of £47bn lent through the scheme could be fraudulent, although it warned this forecast was uncertain.
