Virgin Money house price warning knocks lender’s shares

Virgin Money chief executive Jayne-Anne Gadhia. Picture: Neil Hanna
Virgin Money chief executive Jayne-Anne Gadhia. Picture: Neil Hanna
Share this article
0
Have your say

Shares in Virgin Money slid almost 9 per cent yesterday as a note of caution on the UK housing market by the bank outweighed a sharp rise in its pre-tax profits.

The group, which has a major Scottish base in Edinburgh, said: “The UK housing market is expected to remain resilient; however, in the near term there may be some areas of weakness to be navigated.”

We are not seeing any particular slowdown in Scotland

Jayne-Anne Gadhia

• READ MORE: Banks told to put aside extra £11bn amid borrowing fears

It added: “We remain vigilant about the potential for certain regions to see house price weakness and will continue to manage this through strict application of our existing lending policies and risk appetite.

“Mortgage spreads are expected to continue to face some pressure.”

Virgin Money’s comments came as it announced that pre-tax profits rose to £123.8 million in the six months to end-June, up from £93.7m.

Jayne-Anne Gadhia, group chief executive, indicated that she thought the share price reaction was overdone and that the bank had just wanted to add “a bit of balance” to a generally stable GDP, employment and mortgage market story.

• READ MORE: Scottish house prices ‘growing faster than UK average’

Virgin Money’s gross mortgage lending came in at some £4.3 billion, taking its share of the market to 3.5 per cent. The lender has 7 per cent of its mortgages in Scotland, mirroring its general share of Scottish business.

“We are not seeing any particular slowdown in Scotland,” Gadhia said. She added that the bank was not in riskier areas such as car finance and unsecured personal loans, but its credit cards business, which contributed 28 per cent of total income in the first trading half, saw balances rise 13 per cent to £2.8bn.

200 Voices: find out more about the people who have shaped Scotland

Virgin Money said it planned to hit its target of £3bn in credit card balances by the end of 2017, saying it could do so with no deterioration of loan quality.

Bank of England policymakers have warned recently that banks are edging towards a “spiral of complacency” on consumer lending. Gadhia welcomed the central bank’s interventions to make people look hard at their lending criteria, but added that Virgin Money had written 8 per cent less credit card business than traditionally.

• READ MORE: Virgin Money reveals jump in credit card balances

The bank said post-EU referendum uncertainty remained, but that historically low interest rates and wage growth lagging inflation were still encouraging consumers to borrow. Shares in the group closed down 26.9p, or 8.8 per cent, at 279.6p.

Virgin Money also said yesterday that its chairman Glen Moreno is to step down and retire in 2018.

Provident Financial has seen profits drop by more than a fifth after suffering disruption while shifting its home credit business to a new model, writes Ben Woods.

Pre-tax profits dropped by 22.6 per cent to £115.3m in the six months to the end of June, with the firm booking a £40m hit as agent effectiveness dipped during the transition.

The lender, which offers loans and finance to people with weak credit scores, saw annualised returns on assets slip to 12.8 per cent for the period, down from 14.2 per cent in 2016.

But the group enjoyed a brighter performance from its short-term loans division Satsuma, with credit card issuer Vanquis Bank notching up strong new business.

Click here to ‘Like’ The Scotsman Business on Facebook