Virgin Money UK warns of weaker mortgage volumes in the near term
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Virgin Money UK is warning of weaker mortgage volumes as interest rates rise and the mini-budget creates turmoil in the property market
- Virgin Money said the value of customer loans was £72.6bn in the first quarter
- Interest rate hikes helped boost the group’s net interest margin to 189 basis points
- The company warned that “more muted” mortgage levels are forecast in the near term
Virgin Money UK has revealed that lending remained resilient towards the end of 2022, although it warned mortgage lending would be affected in the near term.
The financial services company said the value of loans to customers rose 0.7 percent to £72.6 billion in the first quarter, driven by increases in mortgages and business loans.
Lending in the latter category was supported by an increase in business as usual balances, which offset a decline in government scheme balances of borrowers making contractual repayments.
Note: Virgin Money UK revealed lending remained resilient towards the end of 2022, though it warned mortgage lending would be affected in the near term
Mortgage lending grew at a much more modest pace due to a weaker real estate market, as mortgage rates soared after the controversial ‘mini-Budget’ at the end of September.
However, the Newcastle-based group told investors that “more subdued” mortgage volumes are expected going forward due to weaker economic conditions.
Inflation is currently at 10.5 percent due to a surge in energy and food prices following Russia’s full-scale invasion of Ukraine and the resurgence in travel as Covid-19 restrictions were eased.
To dampen the high prices, the Bank of England has raised its base rate nine times in a row since December 2021 and will raise this by a further 0.5 percent on Thursday.
This contributed to mortgage demand for new home purchases in the UK plummeting by three-quarters in the last three months of last year, according to the BoE.
But Virgin Money also noted that the rate hikes helped expand its net interest margin to 189 basis points in the first quarter.
For the full fiscal year, the owner of the Clydesdale Bank forecasts that its net interest margin will remain between 185 and 190 basis points.
In addition, it expects a cost-benefit ratio of around 50 percent due to the completion of cost-cutting measures, including investments in end-to-end digitization of mortgages.
The FTSE 250 company began a modified restructuring program two years ago to accelerate its move to digital banking services, in part by cutting numerous branches and offices.
Full implementation of the plan has been delayed due to increased customer demand for assistance due to recent base rate increases and volatility in the wake of the mini budget, requiring more call center staff.
David Duffy, CEO of Virgin Money, said: ‘Delinquencies remain broadly stable, but we have increased the support available to those in need and continue to cautiously anticipate an uncertain economic outlook.
“Looking forward, we have good financial momentum and a number of exciting digital product launches coming up that will support our continued growth.”
Virgin Money UK Stocks were down 1.3 percent at 190.45p when trading closed on Wednesday, though they’ve still grown about 40 percent over the past three months.