House prices in London and other big cities could be headed for a lengthy period of stagnation, Virgin Money warned today.
The challenger bank said it was cautious about making new loans in the capital for fear that borrowers overstretch and end up in negative equity.
It will keep a close eye on loan multiples, especially for those with low deposits.
The most recent figures from Nationwide have London prices rising at 1.2% a year, down from 5% previously.
Estate agents report that in some boroughs prices are going backwards for the first time in years.
Virgin, led by Jayne-Anne Gadhia, said: “The UK housing market is expected to remain resilient. However, in the near-term there may be some areas of weakness to be navigated. We remain vigilant about the potential for certain regions to see house-price weakness.”
That warning, and wider concern about the banks, saw Virgin Money shares clobbered. They fell 24p, or 8%, to 282p. Virgin also needs a new chairman after Glen Moreno said today he will retire next year.
Virgin’s words add to growing fears of a UK debt bubble. Yesterday the Bank of England warned about a startling rise in consumer debt, with car loans, personal loans and credit cards up 10% in the last year.
That compares with household income up just 1.5%. Alex Brazier, the Bank’s financial stability director, warned of a “spiral of complacency” over debt.
“Lending standards can go from responsible to reckless very quickly,” he said.
Gadhia, who reported a 26% jump in half-year profit to £129 million, said the Bank of England was right to be concerned, and insisted that Virgin Money’s own debt is of “pristine” quality. Its bad debts rose 28% to £22 million in the period.
Gadhia said the Bank’s warnings would “hopefully” be enough to rein in reckless lending.
Virgin plans to increase its own credit-card book to £3 billion from £2.8 billion now. It has captured a 3.5% share of the mortgage market, small enough to remain nimble, Gadhia said.
Virgin is not in the car loan or unsecured personal loan markets, two areas of concern for the Bank of England.
Banks have tended to argue that low interest rates mean consumers can easily service debts. Regulators worry that with Brexit risks rising and inflation trending upwards, households are being severely squeezed.
The Bank’s Brazier added: “The sorry fact is that as lenders think the risks they face are falling, the risks they — and the wider economy — face are actually growing”.
Virgin Money has just struck a deal to offer financial services to customers of Virgin Atlantic. It said the “shared brand and closely aligned values” would help sales. It is paying an interim dividend of 1.9p a share.
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