UK bank stocks have done well this year, thanks to expectations of lower interest rates and a mortgage market which is heating up.

Shares in Barclays (BARC) are up 22%, while NatWest [NWG) shares are up 32% and Lloyds (LLOY) are up 40%.

One of the best-performing stocks of 2025 is sub-prime lender Vanquis Banking Group (VANQ) – previously known as Provident Financial – which at the time of writing has racked up a 105% gain.

As a niche lender it has high margins – its net interest margin is 20% against 3% to 4% for the Big Four high-street banks – but it also has big loan losses (impairments are around 8% of the loan book against less than 1% for the big players) and a negative return on equity, so it isn’t a stock for the faint-hearted.

Last year the bank was beset by issues, but this year it put forward a plan to tilt its loan book away from car finance and credit cards towards second-charge mortgages, which the market seemed to embrace even though it means it will take longer to get to the same level of return on equity as its peers.

To put this into numbers, analysts at Cannacord Genuity estimate the risk-adjusted margins on motor finance and credit cards are 8% and 18%, against just 3% for second-charge mortgages, which is where the majority of loan growth is seen coming from over the next few years.

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