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Lloyds’ chief executive said mortgage rates should remain stable following a period of steep increases across the sector, adding that customers seeking protection from future economic shocks would continue to take out home loans this year.
“Unless there is a material shift in expectations around future rates, that mortgage pricing is going to stay pretty stable from here,” Charlie Nunn said on Thursday.
Nunn was speaking as the UK’s largest mortgage lender published its half-year results, reporting that profits edged up slightly in the second quarter as an uptick in mortgage lending and lower provisions for bad loans helped to offset a declining windfall from higher interest rates.
Nunn said future Bank of England rate cuts were already priced into current mortgage offers. Demand for home loans was “still strong” but had eased back from a rise in February after borrowing costs fell from their peak, he said, with pent-up demand still working through the system.
“People are still really wanting to lock in their mortgage for either two or five years, they’re looking for that protection from interest rates,” Nunn said.
Demand for UK mortgages rose in the first quarter of the year after a slowdown in 2023, according to official data, as most lenders cut their mortgage rates amid expectations that interest rates will fall this year.
Home loan rates have continued to fall in recent weeks, as markets anticipate the BoE will cut its benchmark interest rate in August or September from a 16-year high of 5.25 per cent. The average rate for a two-year residential mortgage is 5.79 per cent, according to Moneyfacts.
Lloyds reported statutory pre-tax profits of £1.7bn in the second quarter on Thursday, just above market expectations that the result would be broadly flat year on year at £1.6bn. In the six months to the end of June, profits slid by 14 per cent to £3.3bn, also slightly higher than analyst forecasts.
Loans to customers increased by £2.7bn during the first half of the year to £452.4bn, boosted by growth in retail lending including mortgages and unsecured loans.
Deposits at Lloyds’ commercial bank, however, fell by £1.6bn in the first half, with a decline in lending to small and medium-sized businesses.
The bank said it had set aside lower provisions for bad loans in the second quarter because of improvements in the UK’s economic outlook. Provisions fell to £44mn in the three months to the end of June, down from £419mn in the same period last year, as it reported “resilient credit performance”.
It also saw a reduction in new arrears and defaults across its mortgage book, and “stable” arrears and default levels in its unsecured lending book.
Lloyds’ net interest margin — the difference between the interest it charges on loans and the rate it pays on customer deposits — fell as expected to 2.93 per cent from 2.95 per cent in the previous quarter.
