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

The Daily Telegraph - Business - - Business - By Lucy Bur­ton

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

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