(Reuters) - Virgin Money Holdings Plc (>> Virgin Money Holdings (UK) PLC) joined other British banks in reporting resilient demand following Britain's vote to leave the European Union, saying it had its strongest ever quarter for mortgage lending after the June referendum.

The so-called challenger bank reported a 19 percent rise in gross mortgage lending to 6.5 billion pounds for the January-September period, representing a 3.6 percent share of the UK mortgage market, according to Bank of England data.

"Post the referendum vote, we had our strongest quarter ever for mortgages and credit card business grew strongly too," Chief Executive Officer Jayne-Anne Gadhia told Reuters.

Some economists were predicting the onset of recession in Britain following the surprise vote to leave the European Union, warning it would likely trigger higher bad debts and poorer lending volumes at banks already challenged by rock-bottom interest rates.

But recent data have suggested the economy and housing market remains upbeat and results last week from Barclays Plc (>> Barclays PLC) and Lloyds Banking Group (>> Lloyds Banking Group PLC) have defied the pessimism.

The Newcastle-based company said income had suffered as a result of August's base rate cut and its 2016 net interest margin would dip below 160 basis points.

The lender's shares were down 2.2 percent at 321.5 pence at 1202 GMT, underperforming the FTSE 350 Banks Index <.FTNMX8350>.

The bank also gave no update on when it might resume a plan to begin lending to small and medium-sized firms (SMEs), after mothballing the initiative in the wake of Britain's vote to leave the European Union.

"That's definitely one of those things that we will wait to see once everything settles down post-Article 50 and when we know how Brexit will happen," Gadhia said.

Gadhia said the bank had a robust mortgage pipeline at the start of its final quarter and it was on track to end the year with "solid" double digit returns.

Credit card balances rose to 2.2 billion pounds at the end of September, 41 percent higher than full-year 2015, demonstrating strong demand for consumer debt.

However, growth slowed in the third quarter after the bank tightened credit scores for card applications after the referendum, as it stepped up efforts to protect the credit quality of new lending.

It remains on course to meet a target of 3 billion pounds in card balances by the end of 2017.

The bank also said it had teamed up with former Barclays Plc (>> Barclays PLC) CEO Antony Jenkins' 10x Future Technologies to build Virgin Money's digital bank.

The bank also accelerated plans to issue about 160 million pounds of new contingent convertible bonds, to support lending growth and help its capital and leverage position.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sinead Cruise and Louise Heavens)

By Noor Zainab Hussain