Virgin Money reported mortgage balances down 2% to £56.6bn in the first six months of the year, as it prepares for its merger with Nationwide.  

The high street bank said its lower home loan lending reflecting “the rate environment and wider cost-of-living pressures tempered purchase activity, albeit with signs of improved market activity levels since January,” in its interim results to the end of March.  

Mortgage yields increased 83 basis points, due to higher interest rates, adding that its mortgage interest income was 31% higher than a year ago.  

In the period, it rolled out its premium broker service to 225 mortgage intermediaries, covering around 40% of the bank’s applications.  

Overall, the bank’s lending edged 0.3% higher to £72.7bn on a year ago, lifted by higher business and unsecured loans.  

Pre-tax profit jumped 18% to £279m, primarily reflecting lower impairment charges.  

However, Virgin Money chief executive David Duffy said that “following a good first half we do expect some headwinds” in the final six months of the year.  

He said this would come from “downward pressure” on its net interest margin, which came in at 1.94% — but is expected to come in at between 1.90% and 1.95% in the second half of the year.  

Duffy added he also expected pressure from “ongoing competition, lower interest rates” and a lower contribution from its credit card portfolio.  

Last month, Virgin Money shareholders voted by an 89% majority to accept the £2.9bn takeover offer from Nationwide, which will create the second-largest mortgage lender in the UK.    

The Competition and Markets Authority has launched a probe into the takeover to examine whether the move will “result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”.    

However, the bank said today that as a result of the merger, it does not intend to announce any further share buybacks or dividends and has “deferred certain restructuring activities”.