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Nationwide Building Society has agreed terms to buy Virgin Money in a potential £2.9bn deal.
If the deal goes through, the combined group will control total assets of more than £366 billion and will be the second largest provider of mortgages and savings in the UK.
This would see Nationwide remain a building society, the mutual said, but with an expanded range of products and services and greater scale and financial strength.
Virgin Money is the sixth largest retail bank with 6.6 million customers, who may now be wondering what the news means for their savings accounts and mortgages.
Here’s everything you need to know about what the deal means for you.
Combination: Nationwide Building Society to create one of Britain’s largest banks with acquisition of Virgin Money UK
Will anything change immediately?
If the deal is completed, Nationwide seeks to integrate Virgin Money gradually over several years into the Nationwide group.
The reality is that in the short term, most savers and borrowers will not see any practical changes for some time.
The first thing to note is that the deal still has to be accepted by Virgin Money shareholders.
James Blower, founder of Savings Guru, said: “Given that the offer represents a 38 per cent premium to the share price, this will take some time.” In the short term, nothing will change at all for savers and borrowers.’
A Virgin Money spokesperson added: “As this is a preliminary agreement, it is worth emphasizing that there are no changes for any Virgin Money customers at this stage, and they can continue to access and use their products and services with Virgin Money as normal.” .
Longer term changes
If the acquisition goes ahead, Nationwide intends to maintain the Virgin Money brand in the medium term.
As part of its long-term integration strategy, Nationwide has agreed with Virgin Enterprises that it will cease to retain the Virgin Money brand for a period of six years from the completion of the potential acquisition, by which time Nationwide intends to have rebranded . the Virgin Money business.
David Hollingworth, director at brokerage L&C Mortgages, said: “As a result, it is unlikely that there will be any significant change to Virgin Money’s separate offer following the acquisition, and appears more likely to take time.”
“Of course, there are likely to be changes within that six-year time frame and the product offering may change, but in the medium term it looks like it could remain stable.”
How will it affect your mortgage?
Both brands are expected to continue for some time, so they will likely continue to offer separate products in the short term.
Borrowers have nothing to worry about and their mortgage will continue as normal, David Hollingworth said.
He continued: ‘Virgin Money has been very competitive in the mortgage market and has proven to be more than capable of going toe to toe with the major banks.
‘At times it has demonstrated the ability to bring a different way of thinking to the market and has sought to innovate in its product options.
‘It also has a strong heritage of being able to take a more flexible approach to the right clients, to help borrowers who may be a little outside the standard high street offerings.
“Hopefully that experience will appeal to Nationwide, rather than risk the gradual disappearance of the more individual approach that may be available through Virgin’s Clydesdale mortgage brand in particular.”
James Blower added: ‘The combined group will have better scale, so could deliver better rates and better competition, if the combined group decides it wants to become the country’s leading mortgage provider. But we’re probably a year away from seeing that.”
Nationwide’s statement on the deal seemed optimistic that the deal could result in better rates for customers.
Nationwide chairman Kevin Parry said: “The combination would put Nationwide in a position to… offer rates on mortgages and savings that are, on average, better than the market average.”
How will it affect your savings?
Nothing will change immediately for customers with Virgin Money savings accounts. However, becoming part of a larger entity could be bad news for them in the future, one expert told This is Money.
James Blower said: ‘In the medium term, I don’t think it will be very good for savers. The combined group will be behind only Lloyd’s Bank in size, and the big banks do not offer the best rates.
The combined group will be behind only Lloyd’s Bank in size, and the big banks do not offer the best rates
Savings Expert, James Blower
‘Virgin Money has offered some very competitive deals, has the best one-year Isa and has done so for some time. But I don’t see it continuing as the cost of funds will be more important for the larger group, so I foresee lower rates for Virgin savers in the future.”
Initially, Virgin Money will have to continue as part of Nationwide but with separate licences.
Blower added: ‘Nationwide then needs to decide whether to integrate it or run it independently. If they integrated, it will be a while before you go from two banking licenses to one.
“The regulator may also say that savers of more than £85,000 in the combined group should be given the option to break or switch, without penalty, to get back within the FSCS limits.”
What has Virgin Money said about the deal?
Virgin Money chairman David Bennett said: “Virgin Money’s board is pleased that Nationwide recognizes the considerable strengths and opportunities that exist across our business, and that the potential acquisition delivers attractive value for our shareholders.”
“We are confident that a combination would support an exciting new chapter for Virgin Money to benefit from Nationwide’s scale and ambition.”
What has Nationwide said about the deal?
Nationwide Building Society chairman Kevin Parry said: ‘A combination with Virgin Money would accelerate Nationwide’s strategy and create a stronger, more diverse modern mutual.
“The combination would increase Nationwide’s scale and financial strength, put us in a stronger position to continue providing fairer share payments to eligible Nationwide members and offer rates on mortgages and savings that are, on average, better than the market average”.
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