Lloyds warns of jump in mortgage arrears as interest rates soar
Lloyds Bank has warned of a rise in customers falling behind on loan payments as mortgage rates soar.
The FTSE 100 lender said it saw “modest” increases in defaults and arrears between January and March.
Levels remained at or below those experienced before the pandemic. However, the uptick represents one of the first warnings from a major UK lender about stress in the wider economy seeping into the mortgage market.
Bank bosses have previously said that despite the tougher economic conditions, they have yet to see any significant increase in customers defaulting on their loans.
William Chalmers, Lloyds’ finance chief, said new arrears during the period mostly relate to mortgages written between 2006 and 2008, at a time when borrowers could over-stretch themselves and credit rules were less stringent.
Many of these loans were also on variable rates, making borrowers more vulnerable to the Bank of England’s base interest rate increases.
Mr Chalmers said: “Some of those customers are experiencing a tough time. But it’s very modest. It doesn’t cause us any alarm at all.”
Threadneedle Street has raised its base from 0.25pc at the beginning of last year to 4.25pc, with traders now expecting it to hit 5pc by September.
Chief executive Charlie Nunn added: “The macroeconomic outlook remains uncertain. We know that this is challenging for many people.”
Lloyds set aside nearly £250m for bad loan provisions during the first quarter of the year, up from £177m during the same period last year.
The uptick in arrears came despite Lloyds posting strong profits on the back of rising interest rates.
The lender reported pre-tax profits of £2.3bn for the three months to the end of March, up from £1.5bn a year earlier.
However, Mr Chalmers said that Lloyds was facing increased pressure from rivals in both the mortgage and savings markets on prices.
He said: “We’ve seen mortgage margins as low as they’ve been for a while.”
Shares tumbled 3.9pc to 45.8p in early trading, valuing the bank at £30.2bn.
Mr Chalmers said the emergency rescue of Credit Suisse and the failure of three lenders in the US in recent months has had no impact on Lloyds.
Lloyds deposits fell by £2.2bn, or 0.5pc, during the period. The bank said this was owing to customers spending more on utilities and bills, seasonal tax payments and savers shopping around for the highest rates.
Last week, Lloyds was accused of inflicting “unnecessary disruption” on the lives of its employees after telling them to return to the office for just two days a week.
