High street lender Virgin Money has agreed a £2.9 billion proposed takeover by Nationwide Building Society.

It is in a move that is set to create the UK’s second-largest mortgage and savings group.

Virgin Money has a branch located on Causeyside Street in Paisley.

Nationwide has put forward a 220p-a-share approach for Virgin Money, including a planned 2p-per-share dividend payout, which it said is a 38% increase on Virgin Money’s closing share price on Wednesday.

The companies said they had reached a preliminary agreement on the deal, with Nationwide now looking through Virgin Money’s books before making a firm offer.

The planned tie-up would create a combined lender worth around £366.3 billion, with total lending and advances of about £283.5 billion.

Nationwide said it does not intend to make any material changes to the size of Virgin Money’s 7,300-strong workforce “in the near term”.

Nationwide also stressed it will remain a mutual building society if the deal goes ahead and is given the green light by Virgin Money’s shareholders and Nationwide’s members.

But it revealed it plans to rebrand the Virgin Money business as Nationwide within six years, though it will keep the two brands initially.

Nationwide added it would keep a branch in each location where the combined group is present, until at least the start of 2026 and “values Virgin Money’s ongoing presence in Glasgow and Newcastle”.

Debbie Crosbie, chief executive of Nationwide Building Society, said: “Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches as part of our Branch Promise, and leading levels of customer service.

“We believe the combination would create a stronger and more diverse business that will be better placed to deliver value to our members and customers, both now and in the future.”

Virgin Money said the planned deal comes after a series of proposals from Nationwide and that, if a firm offer is made on the same terms as those so far agreed, its board would “be minded to recommend it to Virgin Money shareholders”.

It said it would benefit from Nationwide’s “scale and pace of investment”.

Virgin Group Holdings, which has a stake of around 14.5% in Virgin Money, said it would also back a deal on the same terms as the current proposal.

Shares in the lender soared 36% in Thursday morning trading.

Virgin Money chief executive David Duffy said: “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new Tier 1 bank in recent history.

“The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.”

Virgin Money is the UK’s sixth largest retail bank, with around 6.6 million customers and total lending of £72.8 billion.

It has a £57.1 billion mortgage portfolio and deposits of around £67.3 billion.

The group has 91 branches, which has been scaled back significantly in recent years after a series of closures due to the shift towards online banking.

Virgin Money was formerly the Clydesdale and Yorkshire bank group CYBG and rebranded after a £1.6 billion takeover of Sir Richard Branson’s banking group in 2018.

CYBG was formed in 2016 after previous owner National Australia Bank divested its UK operations.

Nationwide is Britain’s biggest building society with 605 branches and 18,000 staff and claims to have the UK’s single largest network of branches.

The combined group would have 696 branches, making it the second largest group branch network behind Lloyds Banking Group.

Banking analyst Joseph Dickerson at Jefferies said: “The deal looks to make a lot of strategic sense for Nationwide in terms of extension into cards and business current accounts and scale in core lending and deposits.”