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Full circle: Distributors ripe for investment once more

Payne-Nigel

It’s been a while, but mortgage distribution is a sector that is ripe for investment again

Before the credit crunch the mortgage market saw financial firms and investors look to get a slice of the lucrative mortgage distribution pie. Whether they acquired a distributor or made an investment, there was a lot of money ploughing into the sector up to 2008.

Remember GE Money buying a stake in Solent? Or Merrill Lynch into Edeus? Or the ex-chairman of Bank of Scotland buying into Enterprise Finance?

Of course, we all know what happened next and those ventures, plus many others, never came to much, as the tsunami of the credit crunch swept them aside. What would they have become if the market had not turned?

The investment drought is now over as the stream of mortgage business in the past few years has started to fully flow, especially in the specialist sectors.

Distributors are attracting the attention of investors again, who can see further growth potential, and the past 18 months have seen plenty of activity. We have seen Shepard Direct take a stake in Stonebridge, plus Brightstar, Fluent Money and Enterprise have all had an injection of private equity investment. The latest move was Countrywide making an investment in the Buy to Let Business.

These deals are not the only way investors can take advantage of the growth opportunity the UK mortgage market offers. Mortgage Advice Bureau floated in November 2015 and has seen its share price double over that period, valuing the company at £160m.

ULS Technology (better known as eConveyancer) did the same in July 2014 and, although its share price has not seen the same dramatic growth as MAB, it has still increased by 30 per cent, valuing the business at £36m.

So will we see more investors buying into UK mortgage distribution?

Yes. There is no doubt some distributors who were around in 2007 still feel that they missed out last time. Many were approached and turned down significant investment offers in the belief that the investor was undervaluing their business.

They will not make the same mistake again.

But this time around, will the market, and the businesses involved, see the benefits of these investments? Who knows? But given how the market has changed in the intervening years, the odds are in their favour this time.

Nigel Payne is managing director of TFC Homeloans

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