Solihull-based buy to let mortgage specialist Paragon has been given a banking licence as part of its drive to offer finance in Britain's booming car market.
The first firm to be authorised under the Bank of England's new regime designed to encourage new challengers, the bank intends to use deposits from savers to fund loans to car buyers.
As many as 23 other firms are thought to be considering making formal applications to have a banking licence, needed for any institution wanting to take deposits.
The government is keen to encourage competition on the high street for the "big four" of Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland. But Paragon does not intend to launch current accounts – the main battle ground on the high street – and will not have branches or cash machines. It will initially focus on lending for cars before branching out into other specialist areas of consumer financing. Small business products may follow.
Nigel Terrington, chief executive of Paragon since 1995, said: "We see ourselves as a specialist lender."
The number of employees of the business should rise to 1,000 in the coming years, double the 500 it employed in 2008, when it launched a crucial rights issue, and up from 850 now.
The former boss of ING Direct UK Richard Doe has been hired to run the bank which will not launch any savings rates until May, although Terrington said the group would not be chasing "hot" money from savers flitting between banks offering the highest rates.
He began the process of applying to the Prudential Regulation Authority – the Bank of England's regulation arm – for a banking licence in July. As a result of new rules to make it easier to set up new banks, he has been required to find one year's capital and overheads, some £12.7m, rather than the five years' worth that would have been expected under the previous regime, which the government feared was inhibiting start-ups.
Paragon has a £9bn buy to let mortgage book and Terrington said he was not overly concerned by the potential for a rise in rates from their historic 0.5% low as many of his customers had taken out mortgages when base rates were 5%.