Lloyds Bank predicts ‘mild recession’ for UK this year and tumbling house prices

LLOYDS Banking Group has said it expects the UK to dip into a mild recession this year, as it braces for a fall in house prices and as mortgage lending continues to recover following September’s mini-budget.

The UK’s largest lender flagged an uncertain economic outlook and stressed it was focused on supporting its customers who will be ‘struggling to make ends meet’.

Charlie Nunn, the group chief executive of Lloyds, said: “We are predicting what we call a mild recession – nothing like the financial crisis, more like some of the earlier recessions we had in the early parts of the century.

“For our customers, especially those at the lower income bracket in the UK who we know will struggle to make ends meet, we are focused on supporting them.”

The bank laid out its forecast for the UK economy this year, which includes the Bank of England’s base rate peaking at 4%, and gross domestic product

Lloyds said.

Mortgage lending has been gradually returning to normal levels since the former chancellor’s controversial mini-budget, which led average twoand five-year fixed-rate mortgages to temporarily surpass 6%.

Mini crisis

After what Lloyds described as the ‘mini crisis’, hopeful new homebuyers retreated from the housing market, causing the value of total mortgage lending across the country to drop from about £1.5 billion a day to just £600,000 a day.

These levels have since begun to normalise, but still remain around 30% lower than pre-mini-budget levels, Lloyds said.

(GDP) declining by around 1.2% before returning to growth in 2024.

It also expects house prices to fall by about 7% this year, which would mean the value of average properties returning to levels seen in the third quarter of 2021.

But most of its homeowner customers would still have ‘very positive equity’,

And the higher interest rate environment is expected to impact homeowners who are coming to the end of a fixed-rate mortgage this year, and having to remortgage onto a higher rate.

Mr Nunn explained: “If you look at the average mortgage customer in the UK, their average salary is about £75,000, and the average loan-to-value on our mortgage book is about 41% – so there is really significant equity.

“This tends to be a customer base that is not struggling to make ends meet in terms of the cost of living.

“We are laser-focused on mortgage customers that we know aren’t in that higher income range and are going to experience an increase in interest income that will be difficult for them.

“But we also recognise that about 20% of our mortgage customers are going to be repricing this year, as most have a fixed-term that goes through 2023.”

A significant proportion of customers have had to adapt their spending habits, including switching to supermarket value brands or cancelling subscriptions to deal with higher food and fuel costs, Mr Nunn added.

But less than 1% of Lloyds’ customers are in serious financial difficulty and struggling to make ends meet, he stressed.

The bank said that it had observed a small increase in borrowers defaulting on loans towards the end of last year, but that credit performance was generally strong despite the cost-ofliving crisis.

Nevertheless, the group said it had put aside £1.5 billion in credit provisions over the year to guard it against bad debts, and stressed it was remaining ‘vigilant’ and ready to help borrowers that face difficulties.