Personal finance: One to upset the high street banks

VIRGIN'S CHALLENGE

Virgin Direct, the financial services arm of Richard Branson's cola to airlines empire, is mounting its biggest challenge to high street banks by unveiling a mortgage-cum-bank account called One.

The company claims its one-stop account, which includes 24-hour telephone banking, a debit card and a maximum interest rate on all debts of 8.9 per cent APR, is a unique concept that will revolutionise the sector.

Mr Branson says: "Banking is inherently a very straightforward business. It astonishes me that it has been allowed to become so complicated."

The One account involves prospective mortgage borrowers arranging a loan through Virgin, subject to a minimum of pounds 50,000. On top of the loan, which can be up to 95 per cent of the property's value, Virgin agrees an additional loan facility of, say, pounds 5,000. Interest on this additional amount is only levied when the facility is used.

Each month, account holders pay their income into the account. This reduces the overall amount owed.

Any additional lump sums are immediately credited, reducing the outstanding monthly interest paid. Virgin expects its customers to have paid off the outstanding loan before they retire. The loan is secured on the value of the house until it is.

The rate of interest payable on the outstanding debt is tiered, rising from 8.2 per cent for a loan worth 75 per cent of the property's value (LTV), to 8.9 per cent for a 95 per cent LTV. As it reduces, borrowersask to be moved to a smaller LTV rate, reducing the interest they pay. Otherwise, Virgin continues to assume that the potential line of debt is up to that proportion of the home's value and charges a higher rate of interest.

The company says the aim of the account is to give its holders control over their money. In addition to full monthly statements,account-holders will receive a more detailed statement once a year, setting out whether they are on target to repay their loan.

Should account-holders move into credit, they will receive 5 per cent gross on any sums they save in One. The company admits this rate is not high, but claims that by the time borrowers are in the position of being in the black (its minimum borrowing timetable is five years) more competitive rates may be available.

Initially One will be restricted to Virgin's 200,000 PEP and pensions investors.

- Nic Cicutti

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