Virgin Money, owner of the former Clydesdale Bank, has halted restructuring amid a surge in customer inquiries over interest rates and wider financial pressures.

The lender said the wave of concerns prompted it to boost customer cost-of-living support, including upping its call centre teams. It followed rising inquiries amid recent interest rate hikes and in the wake of uncertainty and unease created by mini-budget market turmoil last autumn.

It prepared for bad debts as the economic outlook continues to remain gloomy and it expects borrowers arrears to pick up, but said these were stable so far. It increased provisions for expected credit losses to £485 million in the first quarter, up from £457m in the fourth quarter of its previous financial year.

The bank, which merged with Glasgow-based Clydesdale in 2018, expects its restructuring programme to restart in the second half of its financial year.

READ MORE: Shares surge in owner of former Clydesdale Bank as lender eyes growth

David Duffy, chief executive of Virgin Money, said its plans still have momentum.

“We’ve had a positive first quarter with continued good progress on digitisation and growth in lending across the business as more customers choose Virgin Money,” said Mr Duffy. “Arrears remain broadly stable but we’ve increased the support available to those who need it and remain prudently provisioned for an uncertain economic outlook.

“Looking ahead, we have good financial momentum and a number of exciting digital product launches to come which will support our continued growth.”

It said it had moved to help customers as well as staff during the financial squeeze.

READ MORE: Glasgow-based bank 'not yet seeing distress' as cost-of-living crisis deepens

“We are committed to supporting our customers to manage the wider cost of living crisis,” Virgin said. “We have established an online cost-of-living hub, which offers free advice and support to customers who are seeking guidance on managing their finances.

“Where customers require tailored support, we are providing assistance, including the ability to restructure facilities or make reduced payments. During the quarter, we also partnered with Youtility, giving customers the ability to save money on their bills, accessible via the Virgin Money banking app.”

The group launched a three-year restructuring programme in 2021 to further cut its branch network amid a switch to online banking, but said it has largely paused this since the start of last year in response to the cost-of-living crisis and a post-Covid return to high streets.

READ MORE: Virgin Money profits lifted by rate rises

It scaled back its branch closure programme in 2022 and put moves on hold to overhaul its call centre operations due to the shift towards online banking.

Virgin Money said it had “strengthened call centre resourcing during a period of elevated customer demand, driven by the multiple base rate changes and further rate volatility post the mini-budget in September”, adding: “In order to further underpin service levels, we have also paused some restructuring activity.”

It reported lending growth of 0.7 per cent in its first quarter as it also benefits from higher interest rates, with the Bank of England expected to raise the base rate again from 3.5% to 4% this week.

However, this is having an impact on demand for new mortgages, according to Virgin Money, as it slows the housing market and buyers hold fire in anticipation of falling prices.

Virgin said: “We are pleased with our progress in the quarter as we continue to deliver on our strategy, despite the uncertain economic backdrop. We have continued to digitise the bank, and we are also seeing positive customer reaction to our digital propositions, with further exciting launches to come.

"Alongside this, we have good financial momentum, including stronger margins and profitable, well-managed growth, while controlling costs, maintaining robust capital and safeguarding and supporting our customers.”

Mortgage balances increased during the quarter by 0.4% £58.4 billion supported by the strong pipeline of business established last year, and despite the slower housing market in the first quarter.

Business lending was up 2.4% in the first quarter to £8.4bn, unsecured lending increased 0.9% to £6.2bn, and overall deposits grew 1.2% to £66.2bn, “with strong growth in new term deposits at attractive pricing offsetting lower savings balances”.

The bank earlier took steps to ease the inflation crisis for its employees by announcing a 10% pay-rise for the majority of its 7,500 staff, in addition to a one-off £1,000 cost-of-living payment in August.

Shares in Virgin Money closed down 2.5p, or 1.3%, at 190.45p.