A&L moves into buy-to-let with Lehmans

Alliance & Leicester, the mortgage bank that has caught the eye of France's Crédit Agricole, is moving into the buy-to-let market backed by the American investment bank Lehman Brothers.

A&L has been mulling an entry into more specialised home-loan markets for a year, and now has decided to provide mortgages to those looking to buy for rental income and riskier borrowers.

The new mortgages will be sold through financial advisers, and the assets taken by Lehman, which can then repackage them and sell them on to investors looking for steady income.

Stuart Dawkins, A&L's director of corporate communications, said: "Buy-to-let and so-called specialist mortgages are now well-established markets and account for up to a quarter of all new lending. That's a lot of potential customers that up to now could not buy one of our products."

A&L's decision to chart these riskier, but potentially more lucrative, new business opportunities comes as the mortgage market leader, HBOS, is reining back lending amid concerns that more Britons are struggling to make repayments.

Simon Maughan, the senior analyst at Blue Oak Capital, said: "Having stood on the sidelines for two or three years, they [A&L] have seen that they were wrong and are coming in.

"Their business cycle is completely different to everyone else, but they are too small to necessarily move by industry trends or to give meaningful guidance about what's happening in the rest of the sector."

A&L revealed that it had won almost double its traditional share of new lending in the first three months of the year. Net lending of £1.4bn gave it a market share of 6.3 per cent, a further improvement on the 5.4 per cent A&L achieved last year and well above its 3.4 per cent traditional share.

However, last year's growth was achieved at the expensive of margin - the difference between the rates at which the bank lends and borrows funds - and analysts expected this to have continued into 2006.

Costs were broadly similar to last year, and bad debts were down a touch.

The bank declined to comment on Crédit Agricole's interest, a key driver of A&L's share price. Yesterday A&L shares eased 10p to 1,154p, valuing the bank at slightly more than £5.2bn.

An informal approach from France's biggest bank pitched at 1,300p a share was rebuffed by Richard Pym, A&L's chief executive. He is understood to value the shares at around 1,500p.