Good morning, everyone. I'm Ian McLaughlin, Chief Executive of Vanquis Banking Group. Thanks for joining us for our 2025 half-year results webcast and conference call. As usual, I'm pleased to be joined by our Chief Financial Officer, Dave Watts. Dave, good morning and welcome.
Thanks, Ian, and good morning, everyone.
As you can see on slide two, I'm going to start with an overview of our performance for the first half of the year. Dave will then take you through the numbers in more detail, and after that, we'll be happy to take your questions. If I can take us straight to slide four. Let me start by briefly looking back, and this is hopefully the last time I will mention 2024. For us, it was a challenging year, one where we addressed the issues of the past, reset the business, and laid the foundations for sustainable, profitable growth in the future. We also had external factors that we had to deal with in the form of CMC complaints and vehicle finance commissions, and I'll update you on both of those in a moment.
Importantly, that reset is now behind us, and the progress we're making shows that our plan is working. Profitability in both quarter one and quarter two obviously means we've returned to profit in the first half of the year. We have now delivered three consecutive quarters of balanced growth: Q4 last year, followed by Q1 and Q2 this year. All our products were profitable, and overall customer balances have grown by 7%. We still have much to do. Gateway, our technology transformation programme, is fully mobilized and remains on track for completion in mid-2026. It is a critical aspect of our plan, so I'll also come back to more detail on that shortly.
Cost control remains a top priority for the management team, with over half of the GBP 15 million of the cost saving we committed to already delivered, so we're on track to deliver the savings that we committed to for full year 2025. On credit quality, customers continue to show resilience with risk performance, reflecting our responsible lending practices across all of our products. Finally, while there's more work ahead, we are making strong progress in modernizing our franchise and strengthening our customer proposition, as shown by the customer ratings and market recognition that you can see at the bottom of the slide. On slide five, we have the headlines on our financial performance and how we're tracking against the guidance that we set out for 2025. You can see the side-by-side view. In short, we believe we will achieve all areas of guidance for full year 2025.
Gross customer interest-earning balances ended the first half at GBP 2.46 billion, giving us confidence to upgrade our guidance for the year end to greater than GBP 2.6 billion. Net interest margin was 17.4%, and we expect it to stay above 17% for the full year. As we evolve our product mix, we're focused on deploying capital for growth in the highest returning opportunities. Our core priority is to deliver a strong return on tangible equity, and that has not changed. Our cost-to-income ratio was 62.5% at the half year. While that is a substantial improvement year on year, it remains above our guidance of high 50s for full year 2025. We expect to close this gap in the second half through higher income, further transformation cost savings, and lower complaint costs. I will touch on those in more detail shortly.
Profit after tax of GBP 5.6 million delivered a 3.1% return on tangible equity, so within our low single-digit guidance range for the full year. Finally, we have the capital required to deliver on our plan. Let's now look at some of the operational highlights across the five key initiatives that we've shared with you in previous presentations, starting with our customer proposition and risk management approach that you can see on slide six. In our cards business, we launched more flexible, tailored products, supporting 6% balance growth in the first half. In vehicle finance, our upgraded decisioning engine helped improve our risk-adjusted margin to 9.7%. Our second charge mortgage book continues to grow well, with balances reaching over GBP 370 million. We broadened our savings range to give customers more flexibility, including new ISA products and launching the Snoop Easy Access Savings Account.
Speaking of Snoop, it continues to be a real strategic enabler, not just growing its user base, but also helping us to improve customer engagement and enhance the overall customer experience as we deploy both the Snoop team and the technology more broadly across the business. Active Snoop users were up 7% in the first six months, with a 12% increase in Vanquis customers using the app. Snoop also plays a key role in our not-yet customer strategy, and you'll remember that that's supporting customers who might not qualify for credit from us today, but who could do so in the future. Instead of turning them away, we give them money management tools through Snoop, which support them to build their financial confidence. Where appropriate, we also refer them to trusted partners like Fair Finance. Our partnership approach with Fair Finance is delivering real impact.
In the first half of the year alone, we referred some 2,600 customers who Fair Finance then helped to access affordable credit and unlocked almost GBP 10 million in unclaimed government benefits for them, in some cases transforming their financial position. By offering these kinds of solutions, we're helping people improve their financial wellbeing and resilience, which in turn builds trust, loyalty, and long-term relationships with Vanquis. Supporting a better overall customer experience, in February, we created a single customer view in our new service platform. This combined 15 separate legacy data sources, enabling our colleagues to deliver faster, more tailored, more accurate support to our customers. In June, we brought that same commitment to life in our rebrand, reintroducing Vanquis to our customers as the bank that's got your back. This is more than a logo or a campaign.
It reflects how we show up for our customers and support them day in and day out in ways that other lenders either can't or won't. That approach is making a difference. Our Trustpilot score remains rated great, with over 80% of our reviews being at five stars, reflecting the real value customers place on the products, service, and support that we provide to them. Turning to slide seven, I'll cover three key areas you can see on the left-hand column: technology transformation, operational efficiency, and our people agenda. Let's start with technology. As I mentioned earlier, our Gateway technology transformation programme remains on track. A recent milestone saw us load 30 billion rows of customer product and decisioning data onto our new IT platform, significantly enhancing our ability to generate insights and make smarter, faster decisions.
This foundation is paving the way for upcoming launches, including our new mobile app and smarter credit card onboarding and decisioning tools, which will be launched over the next three months. We've had a significant amount of technical debt to address, and introducing this modern infrastructure now sets the stage for a more digital, customer-focused experience. While we're enhancing customer experience, we've also been driving operational efficiency across the business, expanding digital self-service, integrating AI, and strengthening our control frameworks to make our processes more efficient. We're seeing the impact through reduced complaints, tighter fraud controls, and expanded debt sales, all of which are contributing to our cost transformation. Alongside that, we've reshaped our operating model. In 2024, we completed a significant outsourcing program that reduced our staffing costs by GBP 25 million and our headcount by 18% year- over- year.
As a result, our U.K. headcount has remained broadly flat over the last six months. Encouragingly, colleague engagement has continued to improve, with our mid-year pulse survey showing a five-point increase, rising to 65%. We believe that reflects growing confidence from our colleagues. While we know there's more to do, there's a real sense in the business that we've turned a corner and we're now heading in the right direction. While we've been focused on turning around the business, there have been two external challenges that we've talked to you about before and that you know have weighed on the bank. These are CMC complaint volumes and motor finance commissions. Let's start with complaints and the recent positive developments on this. You can see the detail here on slide eight. As we flagged in our Q1 trading update, complaint costs were tracking in line with our expectations.
Since the FOS fee reforms that came into effect in April, we've seen a sharp drop in unmerited referrals from claims management companies. I'm pleased to say that trend has continued. CMC complaints referred to the FOS remain negligible. We've also seen a fall in the volume of CMC complaints submitted directly to us. As a result, complaint costs in the first half were GBP 16 million, which is 36% lower year on year, and with a lower run rate in Q2 than in Q1. This supports our expectation that complaint costs in the second half will be lower again. We recognize the importance of the FOS in resolving customer disputes, but it's critical that process works fairly for all parties. That's why we support the government's planned review aimed at reforming the FOS.
More broadly, we continue to engage with regulators on industry-wide solutions, particularly around proper oversight of CMCs and their practices. Finally, a quick update on our High Court case against the Money Solicitor TMS. They're the claims management company behind the largest number of unmerited complaints against us. Following success at the recent strikeout hearing, we're now continuing to progress our case to the High Court. Turning to the second external overhang, the Supreme Court judgment on motor finance commission disclosures and the FCA's intention to consult on a compensation scheme. We're on slide nine now. Firstly, we welcome the clarity provided by the judgment from the Supreme Court and the conclusion that dealer brokers did not owe fiduciary duties to their customers. We believe our liability in relation to this matter is limited, and as a result, we haven't taken a provision.
However, in line with accounting standards and with agreement from our auditors and board, we have disclosed a contingent liability. While we continue to work closely with the FCA, I wanted to share the number of reasons why we believe Vanquis exposure is less than others. Importantly, as we've said many times before, Vanquis never operated discretionary commission arrangements or DCAs, and we are therefore not in scope for this element of any FCA redress scheme. However, the FCA have said they intend to consult on whether certain non-DCAs should be included as part of a redress scheme. They list the factors that they intend to consider, which are consistent with those that the Supreme Court took into account when assessing an unfair relationship in the Johnson case. Against each of these factors, Vanquis' position is clearly differentiated.
We have outlined the rationale for this on the slide, but I would emphasize the following. Our average vehicle finance commissions as a percentage of the total credit charge is around 13%, much lower than the Johnson case, which, as you know, was 55%. We did not operate a right-of-first refusal arrangement with broker-dealers, and in fact, in many cases, we were more like the lender of last resort. Customers signed pre-contractual documentation confirming that they understood a commission would be paid. As a result of all this, we do feel our position is clearly differentiated and look forward to more clarity emerging through the FCA consultation process. Vanquis remains committed to the vehicle finance market, and we're confident in the continued strategic transformation of the business for the reasons that we show on slide 10.
Through our Money barn subsidiary, we support an underserved customer segment in line with our overall purpose as a bank. We help customers finance affordable, often older vehicles that are essential to their daily lives. The most common type of car we finance is a nine-year-old Ford Focus with some 70,000 miles on the clock. We finance essential travel for our customers, not luxuries. This end of the market is resilient, with strong demand and limited direct competition, which allows us to price appropriately for risk and maintain a broader credit appetite. Although the average loan size is lower at around GBP 9, 200, our weighted average APR is over 29%, reflecting that risk profile, and that supports strong unit economics.
After resolving the well-documented challenges in our vehicle finance book that we shared with you in 2024, I'm pleased to report that our vehicle finance business returned to marginal profitability in the first half. This is a positive step, though we've more to do, and scaling and cost to serve remain key focus areas. To support this, we're investing in a new onboarding and servicing platform through Gateway. It will reduce manual work, lower costs, and improve both the customer and the broker experience. In the near term, we're managing new lending volumes carefully as we complete the IT platform build. Balances are down 4% year to date, but improved portfolio visibility has enabled sharper pricing, lifting our risk-adjusted margin to 9.7%. The long-term opportunity here remains compelling.
The market is expected to grow by GBP 6 billion over the next five years, creating a financing need of around GBP 9 billion by 2030. We're positioning this business for sustainable, profitable growth with a clear roadmap, a large addressable market, and a differentiated model for us that plays to our strengths. That wraps up my section for now. I'll be back later for the Q&A session, but in the meantime, let me hand you over to Dave, who will take you through our financials in more detail. Dave.
Thanks, Ian. Slide 12 summarizes the group's financial performance for the first half of 2025. I will comment mainly on our performance versus the second half of 2024. In the first half, we generated a profit in both quarters, supported by a 7% growth in gross customer interest-earning balances and a 13% increase in risk-adjusted income as impairments reduced. Along with significantly lower operating costs, reflecting the absence of 2024's one-off items, profit before tax from continuing operations was GBP 6.2 million. After factoring in tax and the profit from discontinued operations related to the now sold personal loans business, profit after tax was GBP 5.6 million. These results are on a statutory basis. Following last year's notable items linked to the business turnaround, there were no notable items in the first half of 2025. Our key performance metrics are set out on slide 13.
Our statutory return on tangible equity was 3.1%, in line with our 2025 guidance of low single digits. Asset yield, NIM, and total income margin reduced as expected, driven by a greater proportion of lower-risk second charge mortgages. However, our risk-adjusted margin increased by 90 basis points to 12.4%, reflecting a 170 basis point reduction in the cost of risk. With greater clarity on the cost of risk across the portfolios, we intend to focus on risk-adjusted margin as a core metric going forward. The NIM drivers are set out on slide 14. Underlying asset yield improvements added 20 basis points, reflecting pricing discipline across portfolios. Lower funding costs contributed to a further 30 basis points improvement.
These positives were offset by a 20 basis point reduction from a smaller liquid asset buffer and, most significantly, a 100 basis point dilution due to a shift in mix toward second charge mortgages. As a result, NIM decreased to 17.4% as expected. Despite this, due to balanced growth, net interest income rose 1%. Full year NIM guidance remains unchanged at greater than 17%. Slide 15 details our gross customer interest-earning balances, which increased to GBP 2.46 billion. Credit card balances increased 6% all in the second quarter. This reflected both new customer acquisitions and increased card utilization by existing customers. Vehicle finance balances reduced 4% as we managed new business growth while we developed the new IT platform that Ian has already talked about. Second charge mortgages continue to grow strongly, increasing by over GBP 150 million in the first half.
This more than offset the reduction from the personal loan sale. As Ian has mentioned, we are now confident that we will outperform our previous guidance on balances. We are now guiding to greater than GBP 2.6 billion of balances by the end of the year. Slide 16 highlights a much cleaner gross and net receivables position. The 6% increase in gross receivables was driven by the GBP 200 million growth in interest-earning balances. Other movements were small, reflecting our mature debt sale programs. We expect to transact more debt sales in the second half of the year. Net receivables rose by 8%, supported by improved asset quality. Slide 17 summarizes the year on year impairment charge movement. We have restructured the presentation of impairment drivers to separately show gross charge-offs and recoveries from our first nine model movements.
Bottom line, impairment reduced 18%, largely driven by a 20% reduction in gross charge-offs, reflecting continued customer resilience. Impairment on new originations increased 8% in line with balance growth. Backbook credit risk improved with fewer negative stage migrations and lower impairment releases from write-offs and debt sales. In summary, the overall group cost of risk has reduced to 6.6%, with all products coming in below guided expectations, reflecting our responsible approach to lending. We do, however, expect impairment to increase in the second half, driven by new origination charges, and therefore the full year cost of risk by product should be within previously guided ranges. Slide 18 summarizes expected credit losses, noting that we have changed their presentation to be more logical. ECL reduced 6% as originations and net risk movements outweighed releases.
Our coverage ratio fell 1.3%- 9.5%, reflecting increased stage one and stage two balances and a reduction in stage three. Fundamentally, we are comfortable with the current coverage based on a clear understanding of the credit risk of the portfolios. Turning to operating costs on slide 19, total operating costs fell 37%, primarily due to the absence of 2024's notable items. Underlying costs were flat, half on half, with transformation savings and lower complaint costs offset by inflation and growth-related increases. We also accrued discretionary staff costs, having not paid bonuses to colleagues for the last two years. As Ian mentioned, we have embedded cost discipline across the business. We are on track to deliver GBP 15 million in committed savings this year, and we are accelerating some Gateway technology-driven savings into 2025. Our cost income ratio was 62.5% in the first half.
However, we remain committed to our full year guidance of high 50s. Slide 20 illustrates in detail the drivers of the reduction in complaint costs in the first half. Complaint costs fell 28%, driven by a 62% reduction in FOS fees due to a 58% fall in referrals. This shift came primarily in the second quarter following the new FOS fee charging structure. Remediation costs increased due to timing of payouts, while higher direct complaints partly reflect an increase in low-value servicing claims. The reduced balance sheet position is consistent with our expectation that the significant overhang from elevated complaint costs is receding. In July, we published our 2024 results represented by product. Slide 21 shows our first half 2025 product results on the same basis, offering greater transparency into each business line. Importantly, all three lending products were profitable in the first half, as I will cover next.
Turning to credit cards on slide 22, the business delivered a profit of GBP 12.6 million in the first half, and all of the 6% growth in balances came in the second quarter. Headline asset yield declined 40 basis points to 27.8%, driven by the increased take-up of balance transfers and 0% promotional offers, which increased to 11% of the portfolio from 5% in December 2024. As a result, the weighted average APR for the portfolio reduced to 35.5%. These product offers are effective acquisition tools that are expected to drive further interest income over time. Excluding these offers, the portfolio's weighted average APR increased by 40 basis points to 39.9%, reflecting our risk-based repricing strategy. As part of this strategy, we have expanded our range to include cards with 60% + APRs. Combined with lower funding costs, net interest margin remains stable at 24%.
Overall, we are well positioned for more profitable growth through the remainder of 2025 and beyond, with continued focus on customer mix and pricing discipline. Slide 23 covers vehicle finance. Balances reduced by 4% as we manage new business volumes ahead of the Gateway IT platform launch in 2026. The portfolio delivered a modest profit of GBP 1.4 million in the first half, with profitability improving year on year. Repricing actions lifted the weighted average APR to 29.1%, boosting both asset yield and NIM. Risk-adjusted margin increased to 9.7%, reflecting improved credit quality and the absence of last year's receivables review impact. That said, the cost income ratio remains too high at 71%. As Ian noted, building scale and automating processes enabled by the new IT platform will be key to improving efficiency. Second charge mortgages continue their strong growth in the first half, as shown on slide 24.
Balance has reached GBP 371 million, NIM increased to 3%, and the business delivered a profit of GBP 2.4 million. With a weighted average loan-to-value of just over 70%, the cost of risk remains low. As a secure product, second charge mortgages have a low RWA density, driving attractive returns on capital. We've rapidly become a market leader in this space. Through strong origination partnerships, we remain excited about its growth potential, with the overall market originations growing annually at mid-teens percentages in recent years. Slide 25 shows the streamlined Corporate Centre following the reallocation of both funding and cost to product lines. Excluding notable items, the Corporate Centre has consistently reported a circa GBP 10 million loss across the last three halves. It includes returns from the liquid asset buffer, interest costs on unallocated tier two capital, operating costs from Retail Savings and Snoop.
Equity and funding remain core strengths, as shown on slide 26. We hold GBP 619 million of excess high-quality liquid assets, and we continue to improve returns from the liquid asset buffer, with GBP 150 million now invested in U.K. gilts. Retail deposits have grown to over GBP 2.4 billion, now representing 85% of total funding including tier two capital. We have diversified our deposit mix. This has provided more pricing flexibility and has contributed to a 20 basis point reduction in the cost of funds over the past six months. As shown on slide 27, our tier one capital ratio stands at 18.5%, equating to GBP 96 million in surplus capital over disclosed regulatory requirements. The group was capital accretive in the first half, reflecting a return to profitability. The ratio reduced 30 basis points, driven by over GBP 100 million of credit risk RWA growth.
This and tech investment-related intangibles reduced the ratio by 150 basis points. First half profits and the capital benefit from the personal loan sale partially offset this reduction. We have enough capital to deliver our growth plans and expect the ratio to reduce in the second half towards our guidance of greater than 17.5% by the end of the year. We continue to explore options to optimize our capital stack, and we expect the group's capital requirements to be reviewed by the PRA in the second half of the year. Slide 28 reiterates our guidance from the start of the year, which remains unchanged apart from the increase in balance growth expectations. We look forward to sharing a more in-depth strategy update, including our financial goals beyond 2026, alongside our full year 2025 results next year. Slide 29 summarizes our eight key messages in our pursuit of creating long-term shareholder value.
While each is important, I would highlight three. Firstly, we are profitable and growing now. Secondly, our strategic transformation is on track with a focus firmly on execution and delivery. Lastly, and most importantly, we are delivering for our customers to create long-term sustainable and profitable growth. With that, I'll hand you back to Ian.
Dave, thank you for that, as always, detailed walkthrough. If I come up a level, and as I said at the outset, we're pleased with the progress we're making across the business. The summary points are on the slide, you can see, but the main messages, as Dave said, are that we're back to profitability and growth. Costs are well controlled, all product lines are profitable, and we're transforming the business through improved technology and processes. We're particularly encouraged by the return to growth in our cards business and by the continued momentum in our second charge mortgage portfolio. As I said, the external factors that have weighed upon us are either falling away or at least becoming clearer. We have momentum now, but we still have much to do.
Our progress is a result of the incredible efforts of our colleagues, and I'd like to take a moment to thank them for their huge commitment and hard work. We're now happy to move to your questions, and while we can organize for that, I'll leave you with a couple of quotes from our customers on the screen. In their own words, you can see how we're helping people every day, supporting them to make the most of life's opportunities. With that, operator, over to you for questions.
Thank you, Ian. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Gary Greenwood, Shore Capital. Gary, your line is open. Please go ahead.
Oh, hi, morning. Thanks for taking my questions. I've got three if I can. The first one was just on the brand launch. I think you mentioned that the Trustpilot scores were good there, but I was wondering if there were any other observations you'd seen post the brand launch in terms of impact on the business, and if you were thinking of rolling that out to Moneybarn as well in terms of the Vanquis brand. The second one was on deposit markets. If you could just talk a little bit around competition in deposit markets and how you're seeing that. Finally, on capital, I think you mentioned there's a PRA review later this year. In terms of the things the PRA might be considering and how confident you might be in having the capital requirements reduced. Thank you.
Gary, thank you. Good to hear from you, as always. I think you sneaked about five questions into your three there, but let me go through them in a bit of order, and I'll bring Dave in, particularly on the capital one, but maybe to comment on deposits as well. If I start with the brand one though, I mean, this is really important. This is designed by us. This is not an external agency. This is Vanquis saying what it is here to do for its customers. This is our colleagues and our amazing marketing team. It's been received really well. A lot of anecdotal customer feedback that's very positive. Interestingly, internally, we're on bus watch at the minute, so people very carefully are spotting buses all over the U.K. with the bank that's got your back on the back of the bus.
It is landing well and generating a bit of energy and enthusiasm, which is very important. The most important thing for me is it's authentically what we are and what we do. If I turn to your second question on deposits and competition, as I said, I'll bring Dave in in a minute. I guess, you know, we're pleased with how this has worked. We're up to 40% of our deposit book now is on instant access or shorter dated, whereas if you went back a year, it was pretty much 100% on longer dated. We are pleased with how that's worked. Feedback from customers, of course, there is an aspect of competition, but actually, it's the Financial Services Compensation Scheme cover that a lot of our customers are looking for. There's probably a little less competition than you might think. Dave, anything you want to add on that?
Yeah, the other thing I'd add in there is on the Snoop, we've now added that functionality to take a deposit out on Snoop, which has landed really, really well in the first six months of operation. Over GBP 100 million now on that channel. On capital, Gary, look, this is a triennial review that the PRA undertakes. The last one they announced results back in, I think it was March 2023. We've got a good relationship with the PRA. I think the team we have now in place in our Treasury function is stronger. We have a cleaner balance sheet to look at. Without judging what the PRA may say from that, we would hope for a positive outcome, but let's wait and see on that one. We will give further details as we can. Our next update in probably February next year.
Gary, I'd just echo that, you know, we'd never prejudge any PRA outcome. We do have very regular dialogue with them. I think the thing that you can all see now is Vanquis is a very different looking business in terms of its balance sheet now compared to a couple of years ago, particularly with the secured lending, GBP 370 million that we talked about in second charge mortgages and the fact that we're way over 80% retail funded, which is a nice position to be in. We are confident that we're doing the right things, but we will go through our normal process with our regulator. I think that covers that, Gary.
Great, thank you very much.
Thank you.
Thank you.
Our next question comes from Rae Maile from Panmure Liberum. Your line is open. Please go ahead.
Morning, [gents]. Just following up, as well as being on the back of buses, I'm led to believe by people who know about these things, and obviously it won't be me, that you're all over TikTok these days as well. I wonder, can you talk a bit about cost of customer acquisition versus the returns you're seeing from the extra spend you're putting in, how quickly we can expect to pay back on that, and how that influences what you expect to see in terms of growth over the medium term? Pretending I'm Gary just for a moment, sliding in six more questions along the way, can you also talk about not competition in deposits, but actually competition for customers in your core lines of business?
I mean, it's always struck me as one of those areas you've always had fewer competitors than you would have thought the profitability of the opportunity presents. Can you update us on where you are these days?
Happy to, Rae. Good to hear from you, as always. If I talk about customer acquisition, you're not going to get a big teach-in on TikTok from either Dave or I, I would safely say. Look, we have a very vibrant, exciting marketing function now. The lead came in from the Snoop business, so it's sort of fintech-hungry and very much out there. We are doing some amazing things with influencers putting makeup on TikTok, which really appeals to our customer base. You've also seen us move into pretty heavy sponsorship with the Professional Darts Corporation and Luke Littler in particular. That resonates really well with our customer base too.
Those are just examples of what we're trying to do, as well as our normal acquisition or traditional acquisition channels that we've always had, to actually get out to where our customers naturally are and have a presence and talk to them and interact with them and be relevant to them. You'll see more and more of that coming through. In terms of what that's doing to our acquisition costs, they're definitely coming down. I'm not going to quote any specific numbers, but they are moving in the right direction. The other thing I would say is Snoop continues to be a really valuable and live acquisition channel for us as well. The cost of acquisition, as I've talked about before, through Snoop versus more traditional channels is about 10%. Every customer that we bring through there is very good news for us in terms of that CPA rate.
Dave, I don't know if you want to add anything on that.
Nothing on that one, Ian.
I mean, on competition, if I turn to that, yeah, look, this isn't an easy sector to be in. You really need to know your credit underwriting. You need to understand your customer base really well. Rae, you know that we're putting out a Vanquis sort of quarterly update that gives insight to our cohort of customers in a way that I don't think other lenders are able to do. We use a lot of the Snoop analytics again to drive that, and that is landing really well. You know, we keep a really close eye on our competition. I think they're probably more fearful of us right now than we are of them. You can never be complacent in this space. You know, we love every customer that we get, and we work hard to serve them well and to retain them, and we'll continue to do exactly that.
Rae, just a question on balances. You've seen we've sort of nudged up the guidance to be greater than GBP 2.6 billion of balances by the end of 2025. The important thing for us is making sure we deploy the capital correctly, get the right return on capital in place. That's our focus in terms of our balance growth.
That's great. Thank you.
Thank you, Rae.
We currently have no further questions on the line, so I'd like to hand over to James for any webcast questions.
Thank you, Sami. We have three questions on the webcast, all from Paul Bryant from Equity Development. The first one is, what's the automation potential in your underwriting process? Are any loans underwritten on a fully automated process today? Is there automation opportunity to assist manual underwriting through AI and open banking? Essentially, what he's asking is, what's the leverage potential as you grow the lending book? How much will your underwriting team have to increase, or should you be able to absorb that through the automation process? The second question is around the vision for the product mix over the next four to five-year view, so the mix of, or the proportion of lending between credit cards, vehicle finance, and mortgages.
The final question is around complaints, the steady state for complaints costs once the abnormally high complaint volumes have washed through the system, either in terms of pounds value or a percentage of our operating costs.
Thank you, James. Paul, thank you for three really good questions. The automation one, I think, is one that every lender or every big business is grappling with. What can this actually do for us? We've got a really fine balance to find here. One is we want to be really efficient, obviously. We want to keep our costs under the tight control that you're seeing that we're already doing. We also have to maintain that personal service. We will never be digital only. We will be digital led, and you'll see a new mobile app we'll be launching very shortly that will improve customer self-serve functionality enormously through that. You'll see a range of those sort of initiatives coming in.
The whole Agentic AI and how far can that go in terms of both your acquisition, your underwriting, credit assessment, and your lifetime servicing of the product with the customer, that is something that our team are working through right now. We have AI live. It's been a real success for us in complaint triaging and handling. Goodness knows we've had enough complaints to practice on. We've got pretty good at that. It is something that I think we'll be back in with our annual results at the start of 2026 to give the future, the next three years plan in a bit more detail. I would expect this to be a very big factor in that presentation. More to come on that. In terms of product mix, I think we're pretty, I'll come to Dave in a second.
I think we're pretty pleased that our products are competing for our capital. Dave runs a very tight kind of doling out-of-the-pocket money type thing to our product heads, where they've got to prove their return and their volumes before they get the capital allocated. I think that's a very healthy tension for a business like ours. We'll go where the demand is, but we are seeing cards back to growth, particularly in Q2. Really pleased about that. Vehicle finance under measured performance, as I said, it's - 4% year to date, but that will increase again as we get the new operation platform under Gateway that I talked about coming through. Second charge mortgages are going really well. We're very pleased with both the acquisition arrangements that we've got in that market. Dave, don't you want to comment any further?
Yeah, just a couple of points there. As Ian said, we're looking at the return on capital as the most important thing for us. Vehicle finance may be 4% down on balances, but the income for comparison is up GBP 1 million. It's getting a better return for the capital deployed in there. We do like the mix in place. We're going to come to the market next February, going through the results of 2025. At that point in time, we'll give a broader update on where we think balances growth will go in 2026 and beyond. We'll update you on that at that point in time.
I think, Paul, your last question then, just so I don't miss it, was on complaint costs and what would a steady state look like. We're not being at all complacent on this. We've seen this vary enormously over the last couple of years. We are watching it very carefully. It is trending in a very positive direction for us. As I mentioned in my remarks earlier, the FOS fee charging of claims management companies that came in on the 1st of April has been transformational for us. I think the description we gave was negligible FOS referrals since that came in. We are keeping a very close eye on it. I should say as well, I did talk about the court case that we're taking one CMC to, but actually there are some very good CMCs out there as well that do triage their customers' situation very well.
We are very happy to continue to deal with them. Of course, we'd encourage our customers to come to us directly if they've got any issues. We will look at their situation very objectively. If there's things that need to be fixed, we will fix them. It's not like complaints are a bad thing per se. Of course, you want them to be zero, but it's the egregious complaints that hadn't merit that has been the big issue for us. That's what we're seeing fall away. To what's a steady state, Dave? What would your answer be on that?
Interesting question, Ian. As we said in the presentation early on, the second quarter was low in the first, of course, following the new FOS charging on fees come through, which is positive. We expect the second half to be obviously lower than the first half on that one there. I'm not really going to give guidance on 2026 at this stage, but we expect it to be lower than 2025.
Yeah, it's the right question, Paul. Good for you for asking it.
Great. There's no further questions on the webcast. Ian, we'll hand back to you for closing.
Okay. Thank you very much for joining us this morning. We've probably enjoyed this presentation a bit more than some of the previous ones that we've had to do as we sort this business out. As I said earlier, just a huge thank you to all our colleagues for their amazing effort. You don't see a turnaround like this start to happen without enormous effort going in from everyone involved. Big thanks for that. We look forward to seeing our investors on the road over the next couple of weeks. We'll leave it there for this morning. Thank you again for joining.