Sir Richard Branson told mortgage brokers in Sydney yesterday how a lack of transparency around commissions drove him to launch one of the most successful mortgage companies in the UK.
At the launch of Virgin Money Australia’s new home loan in Sydney yesterday, Mr Branson explained how he approached a financial adviser 30 years ago when he “had some money to invest”.
“I went to a broker and asked him if I could invest this money and he gave me a sheet of paper for me to sign,” he explained.
“I saw the words ‘bid offer spread 5 per cent’ at the bottom of the bit of paper. So I said, ‘What does that mean?’ and he said, ‘I take 5 per cent off the top before we start the investment’.
“I thought, ‘Maybe you should say that? Most people wouldn’t understand a bid offer spread’.”
That experience, plus a number of others, forced the enigmatic entrepreneur to consider the lack of transparency in the financial services industry.
“So in Britain we set up a financial services company that has now become Virgin Money,” he said.
“It has been extraordinarily successful. We bought Northern Rock when it ran into financial trouble.”
While Virgin Money Australia is owned by Bank of Queensland, in the UK it is a listed challenger bank with significant scale. The UK lender reported gross mortgage lending up 30 per cent to £2.1 billion in the first quarter of this year.
“One of our products is mortgages and about 85 per cent of our mortgage sales are through brokers,” Mr Branson said.
“We have found it has worked extremely well there. We are one of the most successful mortgage companies in the UK.”
Mr Branson said duplicating this success in Australia “makes a lot of sense”.
“I think utilising the other Virgin companies makes a lot of sense. If you can get Velocity points on top and you’re not paying more for your mortgage, then why not?”
Customers will earn 10,000 Velocity points for every $100,000 borrowed at settlement, 1,000 points per month for each loan split, plus 30,000 bonus points every three years.
Mr Branson also made a surprise announcement at yesterday’s launch. All customers who apply for a Virgin Money Home Loan between 1 June and 31 July (and are approved by 31 August) will have the chance to win a share of 1 million Velocity points.
The new Reward Me Home Loan has a headline rate of 3.99 per cent for owner-occupiers (comparison rate 4.12 per cent).
[Related: Virgin Money reveals third-party plans]