Finance

Lloyds profits decline amid competition in mortgage market

Lloyds Banking Group

The country’s biggest mortgage lender, which also owns the Halifax brand, said pre-tax profits declined to £1.6 billion between January and March, having dropped from £2.3 billion last year

Lloyds Banking Group has suffered a 28% decline in first-quarter profits amid tough competition for mortgages and savings, but bosses said they expected those pressures to soon ease, helped by an improving UK economy.

The country’s biggest mortgage lender, which also owns the Halifax brand, said pre-tax profits declined to £1.6 billion between January and March, having dropped from £2.3 billion last year when rising interest rates boosted the lender’s profits by around 50%.

The bank’s chief financial officer, William Chalmers, said this reflected “keen pricing in the mortgage markets, and savings moving into higher rate accounts”. Competition and jitters in the mortgage market led to a decline in its total outstanding loan book.

It resulted in a 10% decline in net interest income, which accounts for the difference in loan charges versus what is paid out to savers, to £3.2 billion in the three months to March.

Pressure from politicians and regulators to pass on interest rates to savers at the same rate they had been hiking mortgage and loan charges has lowered income for major mortgage providers like Lloyds in recent months.

In response, banks have had to compete harder for customer deposits by offering more substantial returns, especially on fixed savings products where consumers lock away cash for longer. It attracted £1.3 billion in regular customer deposits but that failed to make up for the £3.5 billion pulled by business clients.

House prices, which Lloyds earlier expected to drop by 2.2% in 2024, are predicted to increase 1.5% by the end of the year.

The banking group, often seen as a bellwether for the UK economy, is also predicting a steady improvement in economic growth, at a rate of 0.3% in most quarters and a decline in inflation to 2.4% – from 3.2% in March – resulting in a drop in interest rates to 4.5% by December. It expects the BoE to reduce rates three times in 2024, beginning in the middle of the year.

Chalmers said mortgage applications had already surged by 20% in the first quarter, which could translate into new home loans, and reverse some of its loan book losses. That partly reflected the group’s willingness to offer better interest rates in order to boost lending.

We are really pleased to see the pickup in applications, and development of our market share, in that respect. And I think that represents what is a series of competitive offers out there in the market, suiting our customer needs. We would hope to maintain that ambition over the course of the year, he added.

Overall, the banking boss said he expected the UK mortgage market to grow 5% by the end of 2024.

He said: We’d hope to play a major part in it.

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