Lloyds beats forecasts as mortgage loans power Q3 profit

Lloyds Bank reported better-than-expected third quarter profits and lowered its bad loan provisions after a surge in new mortgage lending.

The company on Thursday reported a £1bn pre-tax profit in the three months to September 30 against analyst expectations of £588m. Net income fell 19% to £3.4bn reflecting lower interest rates and lower other income.

The UK’s largest domestic lender received its biggest quarterly surge in mortgage applications since 2008, booking new mortgage lending of £3.5bn as people rushed to take advantage of the stamp duty holiday for some properties before it ends in March.

Lloyds said it expected loan loss provisions for the year to be at the lower end of the £4.5bn - £5.5bn range previously given. The bank set aside a further £301m to cover expected customer loan defaults amid the coronavirus pandemic crisis, less than half the £721m consensus forecast.

The bank’s core capital ratio increased to 15.2%, compared to 14.6% in the previous quarter, while the net interest margin - the difference between profits on loans versus deposit payouts - rose to 2.42%, up from 2.4% last quarter.

Lloyds said it had granted around 1.2m retail payment holidays on £69bn of loans to ease pressure on customers struggling financially during the pandemic. It added that around 73,000 borrowers were still benefiting from a first payment freeze, while around 142,000 customers had requested extended relief on £9.8bn of loans.

Retail current accounts continued to soar as Britons tightened their belts ahead of the impending economic slump as group deposits rose by £35bn in the first nine months of 2020.

Hargreaves Lansdown analyst Susannah Streeter said the mortgage lending rise was encouraging news, "but once the stamp duty holiday ends and given the fragile economic recovery, there are concerns the mini housing boom could turn into a bust".

"The outlook is still highly uncertain and there was no mention of the return of the dividend. However, the group is heading into this stretch in a resilient position. It's nosing ahead of the pack in terms of new retail customers with a strong balance sheet and increased capital buffers to help it stay on course through the pandemic.''