IRISH Permanent has paid £12.6 million sterling to acquire Capital Home Loans, a residential mortgage lender based in London.

Irish Permanent is acquiring net assets of £10.1 million and paying a premium, or goodwill, of £2.5 million.

Capital Home Loans, a subsidiary of Credit Foncier de France, has a loan book of £200 million sterling. At 1.25 per cent of the mortgage book, the premium is low by industry standards.

Set up in 1989, CHL has been consistently profitable in the difficult British mortgage market, generating annual pre tax profits of £0.7 million to £1 million. Irish Permanent expects to increase profits at the company.

Finance director, Mr Peter Fitzpatrick explained that there will be commercial compatibility between the operations which will help to boost profits. CHL currently funds its mortgage lending from the wholesale money market.

The amalgamation of Irish Permanent's two deposit taking branch operations in London with CHL will give the operation access to cheaper funds, he said. CHL is currently generating a margin of about 1.5 per cent on its mortgage lending.

CHL, which has a staff of 32 people, sells mortgages through a network of intermediaries mainly in the south east of England and in Wales. The company is a centralised lender, so it has no branch network.

All its loans are secured, and loans to self employed, which account for a significant part of the portfolio, have been based on accountants' certificates or tax assessments of income over the three years preceding the granting of the loan. CHL's arrears profile is about half the industry average.

While the latest acquisition is small for Irish Permanent, which has total assets of £4 billion, it is in line with its strategy to grow its mortgage business in Britain as that market starts to improve. The company has a mortgage book in Britain of about £75 million sterling.

Commenting on the deal, Irish Permanent's chief executive, Mr Roy Douglas, said: "The combination of Irish Permanent's product development expertise with CHL's experience in the UK broker market and its distribution capabilities will position Irish Permanent to capitalise on the improving UK mortgage market."