Overall it completed £5.8bn in new mortgage lending during the six months between 1 October 2018 and 31 March 2019.
In interim first half results published today, the lender noted that the market had remained “highly competitive” due to a large number of active lenders and surplus cash from ring-fenced banks.
This, it highlighted, had led to “an over-supply of lending and dilution of mortgage margins”.
As a result, CYBG said it would be cutting back in certain sectors, but did not name those areas.
“We expect the pace of lending growth in our mortgage book to slow in the second half as we look to optimise the mix of lending in our portfolio and proactively reduce volume in selected segments in order to mitigate some of the margin pressures,” it said.
It added: “The uncertain economic backdrop and the maturity profile of business means that the gross lending market continues to be driven by remortgaging activity, up 10 per cent on the prior period.
“We continued to see a growing number of customers favour longer term fixed rate mortgage products, as customers seek to further capitalise on the prevailing low interest rate environment. “Conversely, UK variable rate and Standard Variable Rate (SVR) balances have reduced.”
Higher margin LTVs hit
In a sign of the competitive market, net interest income was down one per cent on the first six months of 2018, driven by mortgage rates, including more recently at higher loan to values (LTVs).
Group net interest margin (NIM) had reduced 1.71 per cent, down from 1.84 per cent in March 2018, but was stable compared to the 1.72 per cent in the second half of 2018.
“The largest impact on group NIM has been the continued dilution in mortgage margins due to sustained competition and more recent pressure in the higher margin segments of the market,” CYBG said.
“Furthermore, we continue to see mortgage customers favouring fixed rate deals and this customer preference, alongside proactive early retention programmes across the industry, continues to exert pressure on mortgage margins through competitive fixed rate pricing and lower SVR balances.”
£5.8bn lending
CYBG finalised the takeover of Virgin Money on 15 October, and the bank increased its mortgage loan book by 2.5 per cent to £60.5bn.
The average loan to value (LTV) of new lending increased slightly to 69.5 per cent from 68.8 per cent and the average LTV of the mortgage book also increased to 58.2 per cent from 57.3 per cent.
The proportion of residential mortgages 90 days in arrears was stable at 0.30 per cent.
CYBG acknowledged that the buy-to-let property market had been more subdued following the tax relief changes for landlords, the increase in stamp duty and enhanced affordability assessments.
Underlying profit before tax of £286m was five per cent lower year-on-year due to the expected acquisition and integration costs, but was up two per cent on the previous six months.
Mortgage pricing stabilising
CYBG chief executive officer David Duffy said the bank had delivered a resilient underlying financial performance and that its three-year integration programme was making good progress.
“As previously announced, we have also increased our forecast of the total cost synergies available by £30m to a minimum of £150m by the end of financial year 2021.”
“Despite sustained competition in the mortgage market and a continued uncertain economic backdrop, we have delivered solid growth in our mortgage book and we have seen signs that mortgage pricing has started to stabilise.
“We remain on track to deliver 2019 performance in line with guidance and look forward to updating the market in June on our refreshed strategy and the significant opportunities for our combined business,” he added.
