Lloyds first-quarter profits fall as mortgage competition heats up
Lloyds Banking Group posted a 28% drop in first-quarter profits amid tough competition for mortgages and savings yesterday but bosses said they expected those pressures to soon ease, helped by an improving UK economy.
The country’s largest mortgage lender, which also owns the Halifax brand, said pre-tax profits had dropped to £1.6bn, down from £2.3bn last year when rising interest rates boosted the lender’s profits by almost 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 had led to a drop in its total outstanding loan book. It resulted in a 10% drop in net interest income, the difference in loan charges and what is paid out to savers, to £3.2bn.
House prices, which Lloyds previously expected to fall by 2.2% in 2024, are forecast to rise by 1.5% by the end of the year.
The banking group, often seen as a bellwether for the UK economy, is also forecasting a steady improvement in economic growth, at a rate of 0.3% in most quarters and a drop in inflation to 2.4% from 3.2% in March – resulting in a fall in interest rates to 4.5% by December. It expects the Bank of England to cut rates three times in 2024, starting in the middle of the year.
Chalmers said mortgage applications had already risen 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 to boost lending.
“We’re 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’d hope to maintain that ambition over the course of the year,” Chalmers said.
Overall, the banking boss said he expected the mortgage market to pick up by 5% by the end of 2024.
“We’d hope to play a major part in it,” he added.
The improved economic outlook meant the bank was more confident that customers could repay their loans. Despite the cost of living crisis and higher mortgage repayments, which have weighed on borrowers, Lloyds has set aside £57m for potential defaults, compared with £243m last year.
The Lloyds chief executive, Charlie Nunn, said: “The group is continuing to deliver in line with expectations in the first quarter of 2024, with solid net income, cost discipline and strong asset quality. Our performance provides us with further confidence around our strategic ambitions and 2024 and 2026 guidance.”
Investors had also been hoping for updates on the Financial Conduct Authority (FCA) investigation into whether consumers have been charged inflated prices for car loans. Lloyds, which has the largest car loan division of the four biggest UK banks, has already put aside £450m – far short of the £2bn that analysts believe it could be on the hook for.
However, Lloyds did not provide any further details about whether it planned to put aside more cash to cover potential fines or compensation for customers. The FCA has indicated that it will give more details