Lloyds, Britain’s biggest mortgage provider, says customers have two reasons to be more confident

The banking giant, which also owns Scottish Widows, said its customers were showing increasing financial confidence as inflation cools and cost-of-living pressures continue to ease. It revealed a 5 per cent increase in spending on non-essential items among its millions of customers over the first nine months of the year, while average spending on energy bills dropped nearly 20 per cent.

Lloyds - Britain’s largest mortgage provider - also highlighted that average spending on charitable giving was about a quarter higher than this time last year. It was reporting its latest figures ahead of other major banks including Barclays and Royal Bank of Scotland parent NatWest, which is due to update investors this Friday.

William Chalmers, Lloyds’ chief financial officer, said the lender had received a strong level of mortgage applications through the year. This led to an increase in the total amount lent to customers over the latest quarter, and Chalmers noted that lending activity was expected to grow during the remainder of 2024, with house prices forecast to rise by an average of 1.3 per cent this year.

Chalmers said Lloyds, which also owns Halifax, was looking forward to getting “clarity” from the upcoming Budget, adding: “We hope the Budget will be a confidence-boosting event when it comes around, but there has clearly been a period of uncertainty before that.”

The impact of uncertainty on consumer behaviour has been “very limited”, but Chalmers pointed to some activity including a slight increase in pension withdrawals in anticipation of Budget tax changes.

The finance chief also hinted that any increase to tax rates for banks in the Budget could have an impact on how competitive the UK is as a financial centre. He said: “The bank sector - and certainly we at Lloyds - are one of the UK’s largest taxpayers already, and actually we take some pride in making our contribution to the society of which we are apart. It is also the case that it is important to have a competitive, stable tax regime to encourage the type of investment and lending that we would seek to do to promote the growth agenda.”

His comments came as the group reported a pre-tax profit of £1.8 billion between July and September, about 2 per cent lower than the £1.9bn generated a year earlier. It nevertheless came in significantly ahead of the expectations of analysts, who had been anticipating a profit of about £1.6bn for the third quarter.

The bank said its underlying net interest income - meaning the amount it generates from loans minus what it pays out on savings - declined 6 per cent year on year. This came as its customers continued to refinance their mortgages on to lower-rate deals, in line with UK interest rates starting to come down.

Group chief executive Charlie Nunn said: “The group delivered a robust financial performance in the third quarter of 2024, with growth in income alongside continued cost discipline and strong asset quality. Our performance allows us confidently to reaffirm our 2024 guidance. As mentioned during our half-year 2024 results update, we are making good progress on our strategy and remain on track to deliver higher, more sustainable returns.

“As ever, we are guided by our purpose of ‘Helping Britain Prosper’ and continuing to provide support to our customers. The strength of the group’s franchise, alongside our financial performance, enables us to deliver for all stakeholders.”

Shares in Lloyds Banking Group were up slightly in early afternoon trading.

John Moore, senior investment manager at wealth firm RBC Brewin Dolphin, said: “Lloyds continues to be a very robust picture, with profits remaining at a healthy level, good levels of net interest margin, and little in the way of bad debts. With interest rates on a downward trajectory, there will inevitably be an ebb and flow to the numbers, and there is some evidence of that today. However, the bank has beaten forecasts and its balance sheet remains solid.”

Richard Hunter, head of markets at Interactive Investor, said Lloyds had kicked off the quarterly reporting season in “unspectacular fashion” though there were signs of improving momentum as the year progressed.

“Overall, these results do not shoot the lights out, but they do provide a large element of comfort that Lloyds continues on its positive direction of travel towards a more streamlined and digital business, underpinned by a healthy financial position,” noted Hunter. “Moves into other income streams such as credit cards and insurance could well bolster its major mortgage revenue, and the group’s confirmation of its year-end targets is proof that the bank remains on track.”

Matt Britzman, senior equity analyst at investment platform Hargreaves Lansdown, added: “The decent margin performance and lower impairments should be a good read-across for names like NatWest and Barclays. Looking ahead, strong capital levels and a stabilising UK economy support returns to shareholders over the next few years.

“That said, there has been a positive change in sentiment since the start of the year and the valuation isn’t as attractive as it once was. The overhang from the FCA [Financial Conduct Authority] investigation into motor finance, where Lloyds is more exposed than peers, could also act as a near-term brake on any further rerating.”

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