The group’s gross mortgage lending in the half year was £2.6bn of which 75% related to residential mortgage lending.
The bank’s underlying profit before tax increased 28% year-on-year to £158m, but it saw post-tax losses of £76m due to PPI legacy issues.
Virgin Money is considering the offer, which valued the combined entity at around £1.6bn, with a little over 5% of the UK mortgage market.
In its 2017 annual results, Virgin reported gross mortgage lending of £8.4bn (around 3% market share) while CYBG grew its lending to £5.5bn for an approximately 2.1% market share.
However, in H1, Clydesdale confirmed longer-term fixed rates are now 25% of its mortgage book since its buy-to-let book fell to 32% from 33% at 30 September 2017 following the regulatory, tax relief and Stamp Duty changes. Owner occupied mortgage lending rose to 76% of its book in H1, with an average loan to value of new lending of 71%.
Mortgage competition is fierce
The report outlined the ‘fierce’ nature of competition in the current mortgage market, with good remortgage activity levels but lower levels of new lending.
In late 2017, the bank brought mortgage processing back onshore to improve the customer journey, but the bank said some servicing and fulfillment delays arose as a result.
It said: “These issues are now resolved, however our Q3 mortgage growth is expected to slow as this is when we will see the impact of lower applications at the start of 2018.
“Despite this, we expect to be within our market guidance for mortgage growth for the year albeit at the lower end of the range, and more broadly, we are now in a better place to deliver our longer-term growth ambitions.”
David Duffy, CEO said: “In the first half of 2018, we have continued to make good progress in delivering our strategic priorities and developing CYBG as the leading alternative to the UK’s big banks.
“In a competitive market, we have significantly increased underlying profit, up 28% to £158m, while achieving 5% annualised lending growth across both mortgages and SMEs.
“While the economic outlook remains uncertain, CYBG is well positioned to continue executing our existing strategy and to capture future growth opportunities across both our Retail and SME businesses in the year ahead.”
Open Banking
The bank said it is readying to leverage its Open Banking platform and deliver a new account aggregator and other services to “further enhance the customer experience”.
It is also preparing to compete for the opportunities offered by the RBS alternative remedies package, a £425m fund available for challenger banks to apply for and build out an SME offering that provides a credible near-term competitor to the incumbent banks.
The report said: “The UK economic outlook remains uncertain and while the economy has remained more resilient than expected following the EU referendum in 2016, the most recent economic data points to a slightly weaker environment. In particular, it appears that consumer spending has slowed and businesses have been holding back investment, which has had some impact on demand but with credit conditions remaining benign.”
It added the high competition in the mortgage market means market swap rates cannot be fully passed through to customer pricing.
It said: “While the Bank of England’s May 2018 decision to hold the base rate stable has delayed expectations for future rate increases, the market continues to expect a rate increase later this year.”
“In addition, following the UK’s decision to leave the EU in June 2016, we chose to reset our balance sheet growth targets assuming a lower growth and low interest rate outlook, and these targets continue to remain appropriate in the continued uncertain economic environment.”
