It was announced yesterday that Nationwide had struck a deal for a potential takeover of Virgin Money for the sum of around £2.9bn.
The latest UK Finance figures, which are for 2022, show that Nationwide is the third-largest lender in the UK by gross lending at £37.8bn, and Virgin Money has seventh position with £10.5bn.
David Hollingworth, associate director at L&C Mortgages, said that the move underlines Nationwide’s “position as a superpower of the mutual sector in acquiring a substantial bank player in the mortgage market”.
“The combination will create another Goliath, furthering Nationwide’s ability to directly take on the big banking groups. This move would initially look to carry the drawback of reduced competition in the mortgage market,” he added.
Hollingworth continued on to say that Virgin Money has been “very competitive” in the mortgage market and “shown itself more than capable of going toe to toe with the major high-street banks”.
He noted: “At times, it has shown an ability to bring a different way of thinking to the market and sought to innovate in its product options.
“It also has a solid heritage in being able to take a more flexible approach for the right customers to help borrowers that may be a little outside the standard high-street offerings.”
Hollingworth said that the expertise will “hopefully appeal to Nationwide rather than risk the gradual demise of the more individual approach that can be available through Virgin’s Clydesdale mortgage brand in particular”.
He said that borrowers should not be worried and their mortgage would continue as normal, and both brands were “set to continue for some time to come, so the market should continue to benefit from differentiated ranges in the near term”.
‘Great acquisition’ for Nationwide
Ben Perks, managing director at Orchard Financial Advisers, said that it was a “great acquisition” for Nationwide as Virgin Money is a “good brand with differing criteria, so the two organisations should complement each other nicely”.
“If they get it right they should be able to offer a wider range of options to borrowers, which could spark some serious competition for customers with rival lenders and this will benefit borrowers greatly,” he noted.
Perks continued that he thought there would be more M&A going forward – for instance, The Co-operative is in talks with Coventry Building Society.
“These deals can be positive, as the greater scale will allow lenders to be less risk-averse and reach out to new customers and sectors. The deeper pockets can also improve systems and processes. But, ultimately, it creates less choice for the consumer, which is concerning,” he said.
Technology investment crucial
David Sharpstone, director at CIS Mortgage Advice, said that there would be “good and bad from this”.
“Virgin still carry relics from the Northern Rock days including an intermediary system that isn’t fit for purpose in today’s high tech world. Hopefully, Nationwide aren’t just buying the back book, but will also pump the right amount of money into redeveloping the system.
“I like Virgin as a mortgage lender and they do some quirky lending such as day one remortgaging – I hope they keep those aspects,” he added.
Mark Robinson, managing director at Albion Forest Mortgages, said that whether this was a good decision was dependent on whether Nationwide “continue the brand, as Virgin have differing criteria”, which will make it “useful” for applicants who may not fit with Nationwide criteria.
He continued: “Should Nationwide incorporate Virgin Money and Virgin disappears, this could leave some people that may have been able to be approved with Virgin, that won’t with Nationwide.
“However, that is a long-term issue, usually when buying a company it would continue to function as its own entity for a period of time at the very least.”
‘Nationwide is at risk of losing customers if they rebrand too quickly’
Phoebe Hodgson, banking and payments analyst at GlobalData, said that the preliminary deal would see the “building society take on an extremely loyal and satisfied customer base”.
She continued that GlobalData’s financial services consumer survey showed that Virgin Money had an “unusually high loyalty rate”, with 94 per cent of customers unlikely to switch providers and 90 per cent saying they were satisfied with Virgin Money’s brand.
“This indicates Nationwide is at risk of losing customers if they rebrand too quickly and disrupt customer satisfaction. Nationwide has stated it intends to integrate both banks and retire the Virgin Money brand within the next six years.
“While planning to do so, Nationwide should focus on providing the most competitive rates and enhanced digital services to ensure Virgin Money’s strengths are not diminished,” she added.
Some views were gathered from Newspage.
