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Virgin Money braces for surge in bad debts while mortgage lending falls 30 per cent

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  • 25/11/2020
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Virgin Money braces for surge in bad debts while mortgage lending falls 30 per cent
Virgin Money is bracing itself for a surge in bad debts by setting aside more than half a billion pounds to cover future losses as borrowers struggle to keep up payments in the fall out of the coronavirus pandemic.

 

Announcing its financial results for the year ended 30 September, Virgin Money reported its gross mortgage lending fell by 30 per cent year-on-year from £10.2bn to £7.1bn in what the group’s boss described as an ‘extraordinary year of disruption’.

The fall in gross mortgage lending was a combination of the closure of the mortgage market, and the bank’s decision not to aggressively compete with other lenders if the margins on pricing became tight.

The group also saw its loan book contract by three per cent to £58.3bn.

 

Bad debts preparation

The £501m provision for bad debts, said Virgin, reflected a “cautious approach to an uncertain economic environment”.

For mortgages alone, the group, which comprises Virgin Money, Clydesdale Bank and Yorkshire Bank, has set aside £131m, an increase of more than 225 per cent on last year.

Profits for the bank plummeted by 77 per cent to £124m.

The bank has granted around 67,000 mortgage payment holidays granted so far valued at £11.9bn, representing 20 per cent of all balances.

Around £2.5bn of mortgages, or four per cent of all balances are still currently on payment holidays after 98 per cent of borrowers returned to payments once their deferral period expired.

Virgin’s net interest margin fell by 10 basis points year on year to 1.56 per cent which the bank said was due to the new lending being below its average back book rates, as well the impact of the base rate cut to 0.01 per cent in March and excess liquidity costs due to higher level of savings deposits.

Over the course of the Virgin’s financial year, the bank launched its Home Buying Coach app to support first-time buyers through a mix of tools, calculators and guides.

David Duffy, chief executive officer, said: “It has been an extraordinary year of disruption for all of us. Our priority has been to support our customers and colleagues through this period, and we will continue to do so during the challenging economic environment ahead.

“While we are yet to see any material impacts of the pandemic on the credit quality of our loan book, our results reflect a cautious and conservative approach to the coming period as we refine our assessment of the uncertain economic outlook and the impact of the second lockdown.

“Although the vaccine news is a strong cause of hope for the future, the economic benefits are still some way off when considering the immediate reality of current restrictions and so have not yet been factored into our near-term forecasts.”

 

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