Several recurring themes emerged in our discussions, with two of the most prevalent being influenced by the same constraint – capital requirements.
Portfolio consolidation
In the six months to March 2025, two UK shareholder-owned banks were acquired by building societies, becoming mutual-owned banks. These transactions were significant involving assets of £648.3bn and accounting for 29% of total UK mortgage balances. In addition, last week Santander announced the acquisition of TSB Group, adding around £69bn of assets to the total, pushing up the mortgage balances to over 31% of UK balances.
We continue to hear speculation about the acquisition of mortgage businesses of all sizes. The UK mortgage market is being pressured by regulatory forces, margin compression, and fierce competition. Stricter capital requirements are compelling lenders to optimize their balance sheets by merging portfolios and reducing capital-intensive risk-weighted assets. These trading conditions are creating opportunities for mutually beneficial deals, where smaller banks and non-bank lenders can sell portfolios to larger institutions to free up liquidity. Meanwhile, a group of specialized buyers, including private equity firms and challenger banks, is keen on acquiring these portfolios to expand their market share.
This consolidation enhances risk management, achieves economies of scale and improves servicing capabilities.
Significant risk transfer
The debate surrounding Significant Risk Transfer (SRT) was just picking up during ABS 2024. However, it became a more significant topic of conversation this year. SRT is increasingly becoming an essential tool for managing regulatory capital requirements, optimizing lending capacity, and maintaining financial stability in challenging regulatory and economic environments. Like portfolio consolidation, the rise of alternative capital utilization is driven by a ready supply of institutional investors, bolstering demand. Concurrently, economic uncertainty and higher default risks have made risk-sharing mechanisms more attractive, even to traditional lending institutions.
We have conducted independent reviews and due diligence analyses on over £400bn of loans across the UK and Europe, establishing ourselves as the longest-running specialist provider of risk consultancy and management services in this market. Whether you are a lender, investor, funder, or Chief Risk Officer (CRO) in any regulated business, our technical experts can assist firms in refining risk models, improving data quality and enhancing analytics.
We’ve been helping regulated firms grow safely since 2008, give us a call to discuss these and other emerging risks.
