Virgin Money launches US 'friends and family' lender

Virgin Money, the business unit through which Sir Richard Branson hopes to acquire Northern Rock, yesterday launched the next stage of its US expansion, with a novel new service enabling friends and families to lend to each other.

Virgin Money USA launched the Family Mortgage after acquiring CircleLending, a specialist financial services company, earlier this year. It has pioneered a business model through which family members or friends can lend money to one another at agreed rates of interest on commercial terms.

The company administers and manages the loans, arranging collateral, interest deductions and repayments, with the rate charged typically 2 to 3 percentage points below what the borrower could find in the commercial sector.

In return, Virgin Money USA earns an up-front fee plus ongoing charges, with fees starting from $100 for a personal loan and rising to $699 for a mortgage.

Asheesh Advani, chief executive of Virgin Money USA, said the launch was well timed as American borrowers were finding it increasingly difficult to source loans and mortgages. "Banks in general are tightening up, so this is a wonderful alternative for people who are looking to seek a loan," he said.

Sir Richard said the CircleLending model had appealed to him because his own business empire had been founded on the basis of borrowing from his family. "One of the first things I did was to build a recording studio, and one of the things I did was to get an aunt to give me second mortgage," he said. "That one gesture by her resulted in the Virgin Group becoming a $20bn business."

The idea has no direct UK counterpart, so Virgin Money would be able to import the concept. The most obvious comparison is with Zopa, a money exchange launched three years ago by the founders of the online bank Egg, which gained market share by undercutting banks and building societies on lending rates.

Zopa puts individuals with savings cash to deposit in touch with borrowers seeking loans, cutting out commercial lenders.