Mortgage boom helps Lloyds Bank beat forecasts with £1.9bn profit

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3 min read
A branch of a Lloyds Bank in London. Photo: Tolga Akmen/AFP via Getty Images
A branch of a Lloyds Bank in London. Photo: Tolga Akmen/AFP via Getty Images

Shares in Lloyds Bank (LLOY.L) surged to a one-year high on Wednesday after it beat forecasts for quarterly performance thanks to a mortgage boom in the UK.

The British bank reported a pre-tax profit of £1.9bn ($2.6bn) on net income of £3.7bn in the first three months of 2021. City analysts had expected Lloyds to turn a profit of £1.1bn on net income £3.5bn.

The outperformance was driven by a boom in mortgage lending. Lloyds lent net £6bn against homes in the quarter, including £4bn handed to first time buyers. Mortgage completions were at the highest level since 2008.

Delivering his last set of results in charge, chief executive Antonio Horta-Osorio said: "We have made a strong start to the year with the quarterly results and on delivering Strategic Review 2021."

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Lloyds upgraded some forecasts in light of its strong performance, including projections for net interest margin, cost reductions, and return on equity. 

However, Horta-Osorio said: "Whilst we are seeing positive signs, notably the progress of the vaccine roll-out and the emergence from lockdown restrictions, the outlook remains uncertain. 

"The group remains absolutely focused on supporting its customers and Helping Britain Recover from the financial effects of the pandemic."

The bank released £323m from loss provisions it had set aside in earlier quarters, citing the improving economic outlook in the UK.

Lloyds said it would continue to accrue dividends with an intention to resume them later this year.

Shares surged over 4% in London.

Lloyds surged on the update. Photo: Yahoo Finance UK
Lloyds surged on the update. Photo: Yahoo Finance UK

The bank had reported strong momentum within the business towards the end of last year thanks to a boom in the UK property market. A stamp duty holiday left Lloyds writing mortgages hand over fist as house hunters rushed to take advantage of the tax break.

Co-op Bank and Santander UK both reported surging mortgage business on Wednesday. Santander UK (SAN.MC) grew its mortgage book by £1.5bn in the first quarter, while Co-op Bank lent net £1bn against property.

The results come a day after HSBC (HSBA.L) delivered a forecast-beating set of results, driven in part by the ongoing property boom in Britain.

Lloyds' finance boss William Chalmers said mortgage demand was expected to cool in the second half of the year after the Stamp Duty holiday ends in June but said there were cyclical factors that meant the property market was still likely to remain buoyant. 

Chalmers said demand was partly being driven by "people's changing habits in terms of the types of accommodation they want to live in."  

"That is driving a component of the mortgage market that I think will last, probably well beyond this year," he told journalists.

READ MORE: Lloyds CEO speeds exit to take up Credit Suisse role

Wednesday's results draw a line under Horta-Osorio's decade in charge at Lloyds. The Portuguese banker leaves on Friday to join Credit Suisse (CS), where he will become chairman. 

"It is with both pride and sadness that I will step down as group chief executive later this month," he said in a statement. "The Group is well placed for sustainable success. 

"The group also has exceptional people. I am very proud of all of our colleagues."

Robin Budenberg, chair of Lloyds, said: "As this is António’s last set of results, I would like to take this opportunity to thank him, on behalf of the Board, for his outstanding contribution.”

Horta-Osorio will be replaced by Charlie Nunn, HSBC's current head of wealth and personal banking.

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