OSB Group hit by competition in the mortgage market

One of Britain’s biggest buy-to-let lenders has rattled investors for the third time in little more than a year with a warning that it is being hampered by stiffer competition in the mortgage market.

Shares in OSB Group tumbled by almost a fifth after the FTSE 250 company behind the Kent Reliance and Precise Mortgages businesses cut its margin guidance for the year and said that its loan book would increase by only 3 per cent in 2024, a smaller rate than had been expected in the City and down from an earlier forecast of 5 per cent.

It is the latest in a series of setbacks at OSB, which hit investors with a profit warning in July last year and a disappointing forecast for margins in March. The latest sell-off is likely to pile further pressure on Andy Golding, 55, its chief executive, who insisted that its underlying business was “in great shape”.

He said that high interest rates, which have risen rapidly since the end of 2021, had meant that mortgage market volumes were subdued, prompting lenders to compete more fiercely for business. “A lot of competitors are pricing buy-to-let loans at margins sub-200 basis points and we just don’t want to play that game,” he said. “We’re just exercising a bit of pricing discipline.”

The market conditions are dragging on its net interest margin, the difference between the rate it charges for loans and the one it pays on deposits. It now expects to deliver a margin of between 2.3 per cent and 2.4 per cent for the full year, having in March told investors that its margin would be “broadly flat” at the 2.51 per cent it reported for 2023.

The prediction cut overshadowed OSB’s first-half results, which showed that its pre-tax profits had jumped to £241.3 million from £76.7 million a year earlier. Profits were knocked last year after OSB underestimated the way in which borrowers’ behaviour would change in the face of higher interest rates, resulting in a £180.7 million blow.

OSB was created in 2019 from a combination of OneSavings Bank and Charter Court Financial Services. Golding had run OneSavings since 2012 and took charge of the enlarged group after the merger. Asked whether his job was now under threat, he said: “My future and position is a discussion for shareholders and non-executive board directors to have. I don’t have any plans to go anywhere.”

Shares in OSB Group closed down 90¾p, or 18.7 per cent, at 393½p, a decline that leaves the business valued at about £1.5 billion and could make it vulnerable to a takeover. There has been a big increase in deal activity among British banks and mutuals this year, including Nationwide’s £2.9 billion acquisition of Virgin Money UK and Coventry Building Society’s purchase of The Co-operative Bank for as much as £780 million.