OSB Group Sees Renewed Demand in Mortgage Applications as Loan Book Growth Accelerates

Highlights:

• Increased Loan Demand: OSB Group reported higher demand across commercial mortgages, bridging finance, and asset finance in Q3.
• Steady Net Interest Margin: The bank maintained its net interest margin guidance of 230bps–240bps for 2024, supported by a steady mortgage portfolio.
• Gradual Market Confidence: OSB’s CEO noted improving confidence in core markets, with rising applications from professional landlords and cyclical businesses.

OSB Group PLC (LSE:OSB) shares rose 7% as the buy-to-let mortgage specialist reported an uptick in demand for loans during the third quarter, signaling a positive trend in its key markets. The company noted that applications for commercial mortgages, bridging finance, and asset finance all showed growth, with expectations for underlying net loan book growth slightly under 3% for 2024. This marks a modest acceleration compared to the 2% increase seen in the first nine months of the year, bringing OSB’s loan book to £26.3 billion.

Renewed Demand for Loans and Steady Net Margins

OSB Group’s quarterly results highlighted increased activity across its lending sectors, which has bolstered the company’s loan book performance. The bank’s forecast for nearly 3% loan book growth in 2024 reflects an upward trend compared to previous quarters. This growth is accompanied by consistent net margins, with OSB maintaining its guidance for an underlying net interest margin between 230bps–240bps for the year.

The company noted that as higher-yielding mortgages in its back book roll off, they are replaced by loans reflecting current market spreads, keeping net interest margins stable. In addition, OSB observed a slight increase in fixed-term retail deposit pricing, which has had a minimal impact on its interest margin projections.

Market Resilience Amid Regulatory Changes

Amid rising interest rates and recent regulatory shifts, OSB’s performance underscores the resilience of its lending portfolio. The UK’s recent Budget introduced a higher stamp duty rate on second homes, a move affecting buy-to-let landlords, which represents a core client base for OSB. Andy Goulding, OSB Group’s CEO, stated that the bank is carefully monitoring the potential impact of these changes on professional landlords, particularly in light of how such shifts may influence investment strategies within the buy-to-let sector.

However, Goulding noted encouraging signs in the broader market, with increased confidence and a resurgence of applications in OSB’s more cyclical business segments. He emphasized that demand from buy-to-let landlords, commercial borrowers, and bridging finance clients has shown resilience despite recent tax changes, suggesting that core markets remain active and engaged.

Signs of a Recovery in Key Segments

The bank’s Q3 results suggest that OSB’s strategic focus on specialized lending services continues to attract demand in a dynamic property market. Goulding noted a gradual return of confidence in OSB’s core markets, reflecting a strengthening appetite for property-related loans. With a diversified offering that spans commercial mortgages, buy-to-let loans, bridging finance, and asset finance, OSB has positioned itself to benefit from varied demand sources, which could support sustainable growth.

Looking forward, OSB’s commitment to stable net margins and targeted loan growth underscores its resilience in the face of market headwinds. Goulding’s outlook remains positive, particularly as OSB’s lending portfolio continues to meet the needs of professional landlords and commercial clients alike.

Conclusion: OSB’s Steady Growth Amidst Evolving Market Conditions

OSB Group’s Q3 results underscore its resilience and adaptability within the specialized lending market, supported by steady demand and strong fundamentals. With increased loan applications across core segments and consistent net interest margins, OSB remains well-positioned to navigate regulatory changes and shifts in the buy-to-let sector.

The bank’s gradual acceleration in loan book growth, alongside a focus on margin stability, suggests it is prepared for continued expansion in 2024. As OSB monitors developments within its professional landlord client base and responds to broader market confidence, it aims to maintain a steady growth trajectory in the evolving mortgage and lending landscape.