(Reuters) - British challenger bank Virgin Money on Tuesday reported strong credit performance and better-than-expected deposit growth from savers, as a string of business-boosting initiatives started to bear fruit.

Reaffirming its full year outlook, the bank said gross mortgage lending was 1.4 billion pounds for the first quarter ended March 31, in line with earlier guidance, albeit down from the 2 billion pounds reported a year earlier.

Mortgage balances rose 10.4 percent to 33.9 billion pounds , while deposits grew to 31.1 billion - up 7.4 percent since March 31 2017.

"We are focused on growing assets at the right price and quality in a competitive mortgage market and are pleased to report 10.4 percent year-on-year growth in our mortgage book," Chief Executive Jayne-Anne Gadhia said in a statement.

Shares were trading 3.7 percent higher at 289 pence by 0810 GMT, compared with a 0.1 percent rise in the FTSE 100. <.FTSE>.

The bank said it had seen "a stronger than expected" customer response to the launch of its Virgin Atlantic frequent flyer credit cards, and that a new distribution partnership with Aberdeen Standard Investments was likely to increase its 13 percent core capital ratio by around 40 basis points.

Founded by entrepreneur Richard Branson in 1995, Virgin Money has become one of Britain's biggest so-called challenger lenders, focused on prising savers and borrowers away from the likes of Lloyds Banking Group, HSBC and Royal Bank of Scotland.

Gadhia told Reuters she was confident the bank would deliver a net interest margin (NIM) of 165 basis points in 2018, in line with earlier guidance, and that UK borrowers remained resilient in the face of Brexit uncertainty.

"Particularly on the cards book, we are seeing no deterioration either in asset quality or in consumer confidence through retail spending. And equally, on our mortgage book, it is very clear that customers are repaying their mortgages," Gadhia told Reuters.

(Reporting by Radhika Rukmangadhan in Bengaluru, editing by Sinead Cruise)