Santander UK aims to retake ground in mortgages

Santander UK has laid out plans to reclaim its position as one of the UK's biggest mortgage lenders after spending the past 18 months shrinking its loan book.

The UK arm of the Spanish bank this week signalled its intention to regain market share with the introduction of a new range of competitive fee-free mortgages, and its first TV advert for home loans in six years.

The move comes amid growing signs of a recovery in the UK housing market. Official data on Tuesday showed that average house prices have surpassed their previous 2008 peak, while lending to first-time buyers has hit its highest level for five years.

Steve Pateman, head of UK banking at Santander, said the lender was now in a position to develop and grow its mortgage business.

"We took the conscious decision last year to reduce our mortgage book by about £10bn to create some space to grow our SME lending, but to also get the balance sheet into the shape we wanted," he said.

In 2012, Santander UK reined in its gross mortgage lending, contracting lending by 38 per cent from £23.7bn to £14.6bn. This saw the bank slip from its position as the UK's second-biggest lender in 2011 to fifth, with a 10 per cent share of the mortgage market.

Mr Pateman said he would like to see the bank return to being a "top three lender". However, Santander UK would not chase market share at the expense of loan quality, he said. The bank has no plans to change its criteria on interest-only mortgages, which it restricted last year to borrowers with a 50 per cent deposit as it pulled back from riskier lending.

The bank stressed it has no plans to step back from lending to small and medium-sized businesses. It expects to grow lending this year by between 12 to 15 per cent, following growth of 18 per cent in 2012.

"This is a market that has contracted by 4 per cent. It's a big commitment from us and one that we are comfortable with," Mr Pateman said.

The bank is also in discussions with Funding Circle - one of the largest peer-to-peer lenders - to join forces on loans to SMEs. This will see the bank lend alongside Funding Circle's depositors on larger loans.

Santander UK is also in talks with the government over the final details of the second - and most controversial - phase of the government's Help to Buy scheme. The £12bn mortgage guarantee scheme, which will be launched in January, has raised concerns that it could lead to a property bubble forming. However, Mr Pateman said there was no sign of strong house price inflation outside of London.

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