Starling snaps up £1BN mortgage book as it seeks to float next year

STARLING Bank has bought a mortgage book worth around £1 billion to turbocharge growth ahead of a flotation as early as next year.

The start-up, founded by Anne Boden in 2014, is understood to have bought the home loans portfolio from Kensington Mortgages, a specialist lender.

Kensington focuses on mortgages for customers who might not get the best deals elsewhere and those who are overlooked by high street banks, such as the self-employed.

Kensington – owned by private equity firms Blackstone and Sixth Street – recently appointed Morgan Stanley to lead a sale process.

The deal is part of a big push by the fledgling bank to grow ahead of a stock market listing which could come next year or in 2023.

It follows Starling’s first acquisition in July, when it bought Fleet Mortgages for £50 million in shares and cash.

Fleet Mortgages, based in Hampshire, focuses on lending to professional landlords through advisers.

Boden said at the time ‘the acquisition... is the start of our move into mortgages’.

Starling is one of a clutch of new digital banks without branches that offer services through mobile phone apps. Analysts said these banks have helped shake up the shoddy services offered by the high street banks.

But few have grown to a size where they can pose a meaningful challenge to the big four – Barclays, HSBC, NatWest and Lloyds Banking Group.

These new banks are also under pressure to turn a profit after the Financial Conduct Authority warned last year that it wants to see start-ups reach profitability within five years of launching to be sustainable.

Starling said recently that it was on track to post its first annual profit for the year ending March 2022. The bank has been posting a monthly profit since last October.

Boden founded the bank with Tom Blomfield, who later left to set up a competitor, Monzo.

It was backed at launch by the mysterious billionaire investor Harald McPike, who invested £150 million.

Boden told The Mail on Sunday earlier this year it was an opportune time to launch a bank because regulations had been relaxed to make way for new lenders, and the high street banks were not investing in digital customer services.

Starling has since attracted a string of top investors, including Jupiter, Fidelity and Goldman Sachs.

It raised £272million in March in a funding round, led by Fidelity, which included backing from the Qatar Investment Authority, the investment arm of the Railways Pension Scheme and the fund group Millennium Management.

Starling is valued at around £1.1 billion.

The bank has amassed more than 2.3 million accounts. In its last financial update, Starling said losses after tax halved to £23.3 million in the 16 months to the end of March. Revenue increased by 600 per cent to £97.6million.

Starling’s deposits have grown to £5.8billion, although its total lending lags at £2.2billion.

Kensington and Starling declined to comment.