Virgin Money trims guidance for 2018 mortgage lending

Virgin Money has trimmed guidance for mortgage lending next year and told investors to expect tighter profit margins and higher investment spending.

The bank, backed by Sir Richard Branson, said competition in the mortgage market had put margins under pressure. To support returns the bank will limit mortgage lending next year to the low end of its guidance of 3% to 3.5% of the market.

Lower profitability on recent mortgages will cause Virgin Money's net interest margin to narrow to between 165 and 170 basis points next year from about 172 basis points in 2017.

Operating costs will be broadly stable but investment spending will rise to £100m, including £40m on a new digital banking service, from £90m in 2017.

The spending increase for 2018 will cover a £10m "non-trading charge in relation to Virgin Atlantic financial service products", the company said. Virgin Money announced a tie-up with Virgin Atlantic, the airline also backed by Branson, in July to sell financial products.

Investec banking analyst Ian Gordon said the plan set up Virgin Money for strong growth but the bank's shares fell 4% to 264p at 09:31 GMT.

The bank said it based its guidance on interest rates staying at 0.5% next year with the economy growing by 1.2%. Unemployment will be 5.3% and house prices will rise 2.1%, it predicted.

Virgin Money updated its guidance as it unveiled plans for its digital bank and expansion into small-business banking. The company expects to attract £5bn of customer deposits to the digital bank within five years with the aim of reduced funding costs and higher shareholder returns.

Jayne-Anne Gadhia, Virgin Money's chief executive, said Britain's big banks are investing in digital technology but are hampered by cumbersome computer systems while start-ups lack the customer numbers to shake up the market.

She said: "Our end-to-end platform will enable us to capture market share by taking full advantage of our unique position and competitive advantages which are defined by a well-known and trusted brand, no legacy issues and an established scalable customer base.

"In order to capture a number of the highly attractive strategic opportunities in front of us, we have refreshed our strategic plan, taking into account expectations for the UK economy, the competitive landscape and exciting market opportunities."