Lloyds profit falls 28% as competition in mortgage market steps up

Lloyds Banking Group has seen its profits drop by more than a quarter in recent months, as interest rates reached a peak and competition in the mortgage and savings market heated up.

But the UK’s biggest mortgage lender said its customers are “resilient” as it unveiled improved predictions for parts of the economy this year.

Lloyds said its statutory pre-tax profit for the first three months of the year hit £1.6 billion, down 28% from the £2.3 billion reported during the same period last year.

It came in slightly below forecasts, with analysts expecting a quarterly profit of £1.7 billion.

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Lloyds said the decline was partially driven by lower net interest income – the difference between what it generates from loans and pays out for deposits – which was down a 10th to £3.2 billion.

This had been expected as mortgage costs eased from the highs reached during the start of last year and as more savers moved cash into accounts with higher returns.

Total lending by the banking group, which also includes Halifax and Bank of Scotland, was down £1.2 billion during the quarter.

This was driven by lower mortgage lending, as more homeowners chose to refinance their mortgage deal at the start of the year than at the end of 2024 when there was more economic uncertainty.

It came as competition has stepped up among UK lenders to offer customers better deals amid a period of historically high rates.

But, since the end of the quarter, Lloyds has seen an increase in the volume of mortgage applications, which it expects to result in greater lending through the year.

Chief financial officer William Chalmers said about half of the group’s customers tied to a fixed-rate mortgage have refinanced since October 2022, representing about £100 billion worth of lending.

A “significant chunk” of borrowers, with loans worth about £50 billion, are set to still refinance over the course of the year.

Meanwhile, total deposits were down by £2.2 billion during the quarter, which it said reflected more business customers withdrawing cash.

Mr Chalmers said: “We have seen an improved outlook for the economy – we think it will get better over the course of 2024 versus what we saw at the year end.”

“Not massively so,” he stressed, but added: “Overall I think that is positive from a customer activity point of view.”

Credit card spending is up around 7% year on year, which Mr Chalmers said reflects a “relatively resilient” consumer.

According to new projections provided by the bank, average house prices across the UK are expected to rise by 1.5% this year, with Lloyds previously forecasting a 2.2% fall.

It is also expecting interest rates to be cut three times this year, with the first 0.25 percentage point reduction coming in May or June.

The group’s chief executive, Charlie Nunn, said the quarterly results “provides us with further confidence around our strategic ambitions and 2024 to 2026 guidance”, and that the bank is “continuing to support customers”.