The lender also booked a £20m loss in its provisional results due to a suspected fraud through one of its outgoing asset finance funding lines, discovered last month.
OSB head of investor relations Alistair Pate confirmed to Mortgage Solutions that the suspected fraud did not involve any of its property funding, which makes up around two-thirds of its £176m in funding lines.
“This particular business where we think something went wrong is in administration now,” Pate said.
“The administrators there have done a really good job and given us and our auditors enough comfort to place a £20m charge in the results.
“As there are legal proceedings underway we have to make sure not to prejudice that – both the fraud squad and regional police are involved,” he added.
An internal review has been completed examining all the lender’s funding lines and policies and it believes there are no other systemic risks present, suggesting this was an isolated one-off case.
OSB has its own asset finance business as well, but does not believe the same risks exist there as in that case it buys the equipment and then leases it back to the customer.
There is also not believed to have been any internal co-operation or assistance in the suspected fraud.
An external review is now being conducted which will further examine the lender’s policies and procedures and then compare them to best practice. It is expected to report its findings to the board in around four weeks.
Pate added: “While this is relatively small compared to our entire £19.2bn loan book, we do take it very seriously.”
BTL lending hit hardest
OSB completed its merger with Charter Court Financial Services (CCFS) in October 2019, bringing together the Kent Reliance and InterBay Commercial brands with the parent company of Precise Mortgages.
The mortgage lending total of £3.8bn, which includes the CCFS Precise Mortgages brand, was down 41 per cent on the combined £6.5bn figure for these firms during the whole of 2019.
Buy-to-let and other non-owner occupier property lending was the hardest hit, down 46 per cent to £1.54bn from £2.85bn at Kent Reliance and InterBay, and down 41 per cent to £1.12bn at Precise.
Residential lending, which is a smaller part of the firm’s book, was down 34.5 per cent to £354.2m at Kent Reliance and InterBay and down 28 per cent to £573.9m at Precise.
OSB directly attributed these drops to the pandemic and said it chose to prioritise underwriting standards instead of volume when markets recovered.
Loan losses up £68m
It also increased its allocation for expected losses through property loans by £68.2m to £111.8m – with the buy-to-let and SME lending losses at Kent Reliance and InterBay expected to grow sharply from £21.6m to £67m.
But the lender added that balances more than three months in arrears remained stable at 0.9 per cent of the book and noted the majority of customers granted Covid-19 payment deferrals had resumed payment.
Payment deferrals peaked in the second quarter at 26,000, representing 28 per cent of the loan book by value, but by 31 December active deferrals accounted for only 1.3 per cent of the group’s loan book by value.
Overall, underlying profit before tax decreased by nine per cent to £346.2m in 2020 from the combined OSB and CCFS figure of £381.1m in 2019.
New business volumes recovered
Andy Golding, CEO of OSB Group (pictured), said the firm entered 2020 with a robust pipeline and application levels in its core businesses were strong prior to Covid-19.
“The initial lockdown inevitably impacted application and completion volumes in the second and third quarters, mirroring the overall mortgage market,” he said.
“As restrictions eased in the middle of the year, we chose to increase lending in our core buy-to-let and residential businesses at higher pricing, albeit with reduced maximum loan to values (LTVs) and loan size.
“We remained vigilant regarding market uncertainty and managed our risk appetite accordingly to maintain strong credit quality. However, I am pleased that new business volumes have now recovered to near pre-Covid levels in these sub-segments, with a strong pipeline of new business.”