Lloyds sounds warning on housing market
Bank sets aside £3.8bn to cover bad loans to families and firms, with £603m for mortgage defaults alone
LLOYDS is bracing for a surge in mortgage defaults as unemployment soars and the coronavirus pandemic batters the housing market.
Britain’s biggest high street bank fell to a £602m loss for the first half of the year after setting aside £3.8bn to cover the cost of soured loans to families and businesses. It fears the economic disaster wrought by coronavirus will trigger a spate of bankruptcies and job losses, meaning many customers will be unable to pay back what they owe. It made a profit of £2.9bn a year ago.
The bank – which also announced potential cuts to its office space after the success of home working – said bad loan provisions could swell to £5.5bn by the end of this year.
It expects to lose £603m on mortgage defaults alone, up from a £38m provision for the same period in 2019, due to forecasts of house price falls.
Bosses said the housing market and consumer spending have picked up over the past few weeks, but the economy will remain fragile for at least the rest of the year. The bank has slashed its economic assumptions as a result.
Experts fear that mass redundancies when the furlough scheme ends will create a legion of forced sellers unable to afford their mortgages. This in turn could trigger a glut of property on the market that sends prices sharply lower, with nervous would-be buyers sitting on their hands.
Shares in Lloyds – whose investors include around 2.4m ordinary households – fell 7.6pc to close at 26.2p.
It has so far approved more than £9bn of emergency business loans under government-backed schemes where the state has pledged to cover a large chunk of lenders’ losses if a borrower defaults. Finance chief William Chalmers said many borrowers using the Bounce Back Loans scheme for very small companies have left their cash in a bank account.
This suggests some relatively healthy businesses are taking on the debt to guard against a possible future downturn rather than because they are struggling to make ends meet today. The economy has gone into freefall this year due to lockdown and banks are braced for millions of job losses. Under its worst-case scenario Lloyds said UK unemployment could peak at a record 12.5pc next year.
Donald Brown, fund manager at Brewin Dolphin, said that the bank is financially sound but the underlying tone of its update was gloomy.
He said: “Of all the major banks, Lloyds is most exposed to the performance of the UK economy, which brings with it its own set of challenges, not least the influence of Brexit, which is still taking shape in the background.”
Chief executive António Horta-Osório, who has announced he will step down next summer after a decade in charge, said the impact of the pandemic so far had been profound.
Delivering a further blow to the City – which has been left empty as many thousands of commuters stay home – Mr Horta-Osório confirmed that the bank is planning to reduce its office footprint and consolidate into six hubs across the UK following the success of remote working during lockdown.
He said: “We are becoming less reliant on office space and the type of office space we will need in future is likely to change to reflect working styles.”
Antonio HortaOsorio, chief executive of Lloyds, said the impact of the pandemic had been profound