High street bank Virgin Money UK has revealed a dip in total mortgage lending amid a slowdown in the housing market, as it steams ahead with plans to trim its branch network.

The lender said it had been a “positive start to the year” in unveiling first-quarter financial results in line with its expectations.

It showed a 2.2% decline in mortgage lending to £57.1 billion in the three months to December, from £58.4 billion in the same period a year earlier.

This fall reflected a disciplined approach to lending in a “subdued” market, it said.

But it pointed to early signs that activity in the housing market improved in January, with residential and buy-to-let mortgage applications being more in line with 2019 levels before the pandemic.

Lower mortgage rates are expected to give consumer sentiment a boost, as interest rates have now “peaked”, the bank predicted.

Nevertheless, provisions for bad loans grew to nearly £640 million from £617 million in the previous quarter, meaning it set aside more cash for people falling behind on repayments.

The number of customers falling into arrears on credit cards continued to increase while overall arrears remained broadly stable.

The amount of cash deposited with the bank grew by 1.7% to £67.3 billion, from £66.2 billion the previous year, as it added 27,000 net “active” customer accounts during the quarter.

Virgin Money, which had about 6.6 million customers at the end of the 2023 financial year, has been focused on cutting costs and driving a shift towards online and mobile banking.

It said it was on track to meet its target of saving £200 million a year through restructuring, and said it closed 39 branches in the latest three-month period with the loss of about 150 full-time jobs.

That means it has shed 30% of its total branch network, leaving it with 91 physical stores, and has also reduced its office space by more than a third.

More full-time roles are expected to go during the year, Virgin Money said. It did not specify how many but it is understood the business will look to avoid making compulsory redundancies.

The bank also signalled that it would keep its branch network under review amid a shift to digital banking, which most rivals have said they want to focus on.

The bank said it is expecting to have spent about £275 million on restructuring costs, including improving IT systems, changing property spaces and cutting roles.

Last year, the business unveiled plans to spend £130 million on artificial intelligence and technology to help fight cyber crime, through a programme spanning three years of investment.

It said it was making “good early progress” on this programme in the latest update to investors.

David Duffy, Virgin Money’s chief executive officer, said: “We’ve delivered growth in new accounts, deposits and target lending segments, at stable margins and with ongoing cost efficiencies.

“We are encouraged by both our customers’ resilience and improving sentiment in the mortgage market as interest rates have peaked.

“We carry good momentum into 2024 as we continue to successfully execute our strategy.”