Lloyds Banking Group has put aside more than £400m to prepare for a potential increase in customers falling behind on more costly mortgage payments.
It comes amid surging interest rates, which have risen sharply since late 2021 and made payments more expensive for new owners and those rolling off existing fixed mortgages.
Lloyds, which is the UK’s largest mortgage lender and owns Halifax, said pre-tax profits fell 29% to £1.6bn in the second quarter, partly as a result of the provision. That marked a drop from £2.3bn a year earlier.
While the bank’s net interest income – which accounts for the difference between what is charged for loans and mortgages and what is paid out for savers – was broadly flat at £3.5bn, the bank’s profits were hit by its predictions for the British economy.
The lender said that although its own economists were expecting stronger UK economic growth compared with six months ago, that was offset by fears that higher interest rates would lead to increased losses. It put aside £419m to cushion the blow of any defaults, where mortgage or loan borrowers fall behind, or potentially default, on their payments.
However, Lloyds, which is considered a bellwether for the UK economy, said its “asset quality remains resilient and the portfolio is well positioned in the context of cost of living pressures”.
Mortgage payments for some homeowners, who are already being squeezed by food and fuel costs and have had to renew their mortgages, have soared after 13 consecutive interest rate rises by the Bank of England, where policymakers have been trying to get rising inflation under control. Threadneedle Street is expected to raise the base rate further next week from 5%.
Lloyds’ chief executive, Charlie Nunn, said: “We know that rising interest rates, cost of living pressures and an uncertain economic outlook are proving challenging for many people and businesses.”
However, he said the bank, which “delivered a robust financial performance in the first half of the year”, was “fully focused on proactively supporting our customers and helping them navigate the current environment”.
Nunn declined to comment on the circumstances surrounding the resignation of his counterpart at NatWest, Alison Rose, after controversy over the closure of Nigel Farage’s bank accounts.
Speaking to reporters on Wednesday morning, Nunn said it would “not be appropriate for me to comment around what the NatWest board and Alison has gone through”, but extended respect to his now-former big four banking rival.
“I would just say, I’ve really respected Alison as a role model in financial services. Some of the leadership, especially around topics like sustainability and female entrepreneurs, has been great and I’ll miss her in that context,” he said.
“With respect to Lloyds Banking Group, we’re very clear that our policy on what choices and information we use when we onboard a customer or when we look at closing a customer’s account doesn’t include any consideration of their political or personal beliefs. And so we’re very comfortable that’s the right policy for Lloyds Banking Group.”
