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Virgin Money shares gain as it reports growth in third quarter mortgage and credit card lending

Virgin Money expects to reach its target of £3bn in card card balances by the end of 2017 as consumer lending in the UK continues to boom

Virgin Money
Virgin Money has about a 3.5% share of the fiercely competitive British mortgage market

Virgin Money Holdings PLC (LON:VM.) shares jumped as it reaffirmed its full-year guidance after delivering growth in mortgage lending, credit card and deposit balances in the third quarter.

Mortage lending came to £6.5bn at September 30 as demand was supported by a resilient housing market and low unemployment.

The lender, which floated on London’s main market in 2014, said mortgage balances rose to £32.91bn at the end of September, from £29.74bn at the end of 2016.

Virgin has about a 3.5% share of the fiercely competitive British mortgage market, which includes more established banks including Lloyds Banking Group PLC (LON:LLOY), Barclays PLC (LON:BARC), Royal Banking Group PLC (LON:RBS), HSBC Holdings PLC (LON:HSBA) and Santander UK PLC (LON:SANB).

Banks are also facing a slowdown in the housing market with the number of mortgages approved for house purchases falling to 66,580 in August from 68,452 in July, according to Bank of England data.

Deposits at Virgin rose to £30.03bn at the end of September from £28.1bn at the end of 2016.

Virgin reports credit card growth 

Credit card balances increased to £2.89bn at the end of September from £2.44bn at year end, and Virgin said it remains on track to reach its target or £3bn in card balances by the end of 2017.

It also expects its full-year CET1 ratio, a measure of its capital buffer, to be around 13.5%

The Bank of England has raised concerns about the rate of growth in consumer debt, prompting banks to tighten lending standards and make it harder for borrowers to get new credit cards or consumer loans.  

The latest figures from the central bank revealed that consumer credit rose by £1.58bn in August, compared to a rise of £1.66bn in July.

"Our prime credit card business is developing as planned and, as a responsible lender, the strict and consistent application of underwriting standards supports a low and stable cost of risk as well as resilience in the future," said Virgin's chief executive Jayne-Anne Gadhia. 

Shares rose 3.57% to 299p in morning trading. 

Numis cautious on outlook as UK faces possible recession

Numis maintained a 'hold' rating on the stock with a target price of 289p, saying the group has reported "good growth" in both mortgages and credit cards. However, the broker does not expect to make any material changes to its estimates, which reflect "our more cautious outlook that the UK enters a recession in 2018 and impairments rise sharply".

"In our view, the cycle is turning as asset yields have fallen significantly, banks' credit standards have been relaxed and consumer credit is growing at circa 5x household income growth. Meanwhile, the deteriorating macro picture is likely to increase uncertainty, reducing investment and spending further."

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