Virgin Money: The birth of a mortgage lender

The Virgin Money buy-out brings with it both good and bad news, but it is the latter - the £653m loss to taxpayers - that will make all the headlines tomorrow.

The "bad bank" - or Northern Rock Asset Management's mortgage book - is yet to be sold, so the losses are probably overstated, but the deal feeds £747m back to government coffers and creates a big, shiny new high street bank.

Bidders including Paragon, Yorkshire and Coventry building societies fell by the wayside, but that's over now, along with any remutualisation hopes.

A Virgin Money spokesman confirmed the deal and re-brand to Virgin Money will complete around the end of the year, but what does this mean for the mortgage market?

The consensus is largely positive. Wilbur Ross, chairman and chief executive of private equity firm WL Ross who provided £100m for the Virgin bid reportedly promises a further £500m if the bid is successful.

That's not going to be enough to reverse the faltering lending outlook as banking Eurozone pressures bear down on UK lenders. However, sources suggest the new entity will bring a new, re-energised lender into the marketplace, pushing up lending levels, with sources suggesting projected figures from the bank of up to £7.5bn next year, a full £3.5bn more than 2010 figures.

Northern Rock lent £4bn last year and is currently the seventh biggest lender in the UK, quite a long way behind HSBC in sixth place. The nationalised bank lent £1.5bn in H1, with a strong lending pipeline due to be reported for H2, according to a spokesman.

The spokesman refused to be drawn on future strategy, but confirmed the good fit between Northern Rock as a mortgage and savings bank and Virgin as a credit card and insurance provider should reassure the market, with no more restructures or pre-announced job losses on the way.

Peter Brodnicki, chief executive, Mortgage Advice Bureau, said this is a people business, so if relationships are maintained into the Virgin Money brand that will be good for the intermediary market.
"If call-centre jobs are secure and people stay, this will strengthen their growth plans further," he added.

Ray Boulger, senior technical manager, John Charcol said: "Any increased lending figures are good news. Contagion from the Eurozone will mean other UK lenders rein in lending next year, so this could go some way to fill that gap."

Virgin has always had big plans and led by Virgin Money chief executive, Jayne-Anne Gadhia, the buyout produces a mortgage lender of note in one fell swoop. From a PR perspective banks are held in relatively low esteem by Joe public. Let's see if a fresh face, with lots of business to win, less to lose from its mortgage book and nothing to apologise for - yet - whets consumer and broker appetites.