Experian to buy stake in British broker London & Country

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Consumer credit bureau and data aggregator Experian will gain a foothold in the U.K. mortgage market by acquiring a minority stake in mortgage brokerage London & Country Mortgages Limited.

Under the agreement, Experian will acquire a 25% minority stake in L&C, marking the first time a credit bureau has owned a stake in a mortgage brokerage, Experian said. Financial terms were not disclosed.

L&C Chairman Mike Edge will continue to be the majority shareholder of the privately held brokerage. A "significant" portion of equity will remain with the company's management and employees, according to a press release.

"The market is changing at pace and we are determined to lead the way through this exciting partnership with Experian to accelerate the growth and development of our hybrid digital proposition. Together we will build an even stronger business than we have today," Edge said in the release.

Mortgage brokers — often referred to as "advisers" in the U.K. — account for as much as 80% of the loans originated in what is Europe's largest mortgage market, according to recent research by fintech vendor IRESS. U.K. lenders funded approximately £245 billion (US$327 billion) in mortgages during 2016 and are projected to originate £248 billion (US$331 billion) in 2017, according to the Council of Mortgage Lenders, a division of the financial services trade group UK Finance.

L&C, headquartered in Bath, England, is the U.K.'s largest no fee broker, meaning it does not charge borrowers an additional fee for its services beyond the commission that the funding lender pays to the broker.

Echoing ongoing trends in the U.S. market, half of all U.K. lenders surveyed in the IRESS research said they have launched or are currently developing self-service, digital mortgage offerings. Likewise, Experian and L&C intend to work on streamlining the borrower experience, according to Clive Lawson, managing director of Experian consumer services.

"We’re excited about the potential of this partnership and the opportunities we see to work with L&C to improve customer experience in the U.K. mortgage market," Lawson said, in a press release.

The transaction is subject to regulatory approval by the Financial Conduct Authority. As news of the deal emerged in England, some brokers raised concerns about conflicts of interest and unfair competition, according to Mortgage Solutions, a financial publication for U.K. mortgage brokers.

Among the questions raised was whether L&C would no longer have to pay for credit reports? Would the brokerage gain access to customer leads based on credit report orders submitted by competing brokerages?

In a statement, Experian told the publication L&C would not have unfettered access to the credit bureau's data and that the deal doesn't affect its ability to work with other brokers.

L&C has been rumored to be pursuing an initial public offering for more than a year, with Experian entering the picture a few months ago in hopes that an investor acquiring a stake in the brokerage would help bolster a £300 million (US$400 million) valuation, according to The Telegraph. L&C earned pretax profit of £9.5 million (US$12.7 million) off revenue of £44 million (US$59 million) in 2016, up 14% and 25%, respectively, according to the British newspaper and website.

This year, Experian saw 5% growth in total revenue with strong business-to-business growth and progress made in consumer services as of Sept. 30, according to the company's half-yearly financial report.

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Mortgage brokers Digital mortgages Consumer direct Credit reporting Experian U.K.