Given market rumblings about a potential peak in UK house prices, it may seem an odd time for a mortgage lender to come to market. Challenger bank Charter Court Financial Services (CCFS) doesn’t seem to think so, listing on the premium segment of the main market this week. The specialist lender raised £20m in new funds, with majority shareholder Elliott Management selling down a chunk of its stake. This gave the specialist lender a market valuation of around £550m, equivalent to 230p a share upon admission.
Charter Court was founded by members of its management and hedge fund Elliott at the height of the financial crisis in 2008 as Precise Mortgages. Elliott has retained a majority holding of almost 54 per cent in the group. In 2010 it became the first non-bank to receive authorisation as a mortgage lender post-crisis, from the then-named Financial Services Authority. It now writes buy-to-let and specialist residential mortgages, as well as administering those written by Precise Mortgages and some third-parties. That’s in addition to running online bank Charter Savings, which provides the retail deposits used to back its loan book.
The challenger bank has been growing at an impressive rate in recent years. During the two years to the end of 2016 its loan book had more than trebled to £3.8bn, rising to £4.4bn by the end of June this year. Buy-to-let mortgages – granted to a mixture of professional and non-professional landlords – made up 57 per cent of this total.
Its residential mortgages are marketed towards what management calls ‘complex prime’ customers – the self-employed, Help to Buy, Right to Buy, new-build borrowers and near-prime borrowers, with some imperfections in their credit history it considers minor. Management says its roots in mortgage administration, analysis and consultancy give it an advantage over mainstream banks in appropriately assessing risk within this non-standard market.
Charter Court’s closest listed peer is OneSavings Bank (OSB). Like OSB, it is without the legacy issues of the mainstream banks and has managed to turn a tidy profit in recent years. During the first six months of the year it almost doubled pre-tax profits to £59m. The Wolverhampton-based group is already heading towards achieving its target ‘mid-20s’ return-on-equity – delivering a 19 per cent return in 2016.
