Barclays is understood to be preparing a bid for mortgage lender Kensington in a deal that would value the firm at around £1bn.

The bank looks set to compete against digital bank Starling for Kensington, which is backed by private equity companies Blackstone and Sixth Street.

Kensington, which launched in 1995, was put up for sale late last year in an auction process led by investment bankers at Morgan Stanley.

Kensington, led by chief executive Mark Arnold, focuses primarily on offering home loans to the over-55s and the self-employed.

The lender was owned by the bank Investec until 2014, when it was sold to Blackstone and TPG.

In November last year, Kensington launched a mortgage product with a rate that could be fixed for up to 40 years.

It said that borrowers could fix their rate for anything between 11 and 40 years, with the cost dependant on the length of repayment and the size of the loan compared to the value of the home.

Arnold said at the time: “A [longer] fixed-for-term mortgage – already very popular in some parts of continental Europe – is likely to become increasingly attractive in a rate rising environment.”