And will all the big lenders get a Halloween surprise?
Over the last few months, the mortgage market has changed substantially. At first there was stasis – a first time buyers’ market paralysed by high rates and movers who couldn’t afford to, well, move. Then everything changed.
Santander started it all – it was one of the first banks to cut rates after the Bank of England’s August rate cut, but the big lender was already smarting – it had seen an 11.4% mortgage market share slump to just 6.7%. If the bank had maintained its 2022 market share, it would have allowed it to claim to be the UK’s third biggest mortgage lender. Its 2023 results, however, left it languishing in sixth.
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The move kicked off a major mortgage market battle – multiple lenders slashed rates as banks like HSBC slashed interest rates to under 4%. House prices gleefully jumped skywards, window shoppers became house buyers, and we all started helping clients get mortgages - but then, as we all know - the market got spooked by a potential Labour tax grab and suddenly, mortgage rates started heading upwards again.
It’s into this backstory (and don’t forget it’s only just over nine sleeps until Reeves’ Halloween budget hits) that this week we’ll see what the uncertain market has done to the big lenders’ bottom lines. Several of the UK’s largest mortgage lenders are preparing to disclose their financial performance for the third quarter, giving insight into what effects lower mortgage rates are having on their profits. These announcements, set for Wednesday, Thursday, and Friday, come from Lloyds Banking Group, Barclays, and NatWest, respectively. HSBC is pegged for the following week.
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Analysts are generally upbeat (less so for you, Lloyds) and suggest that, despite the broader economic uncertainty, the banking sector has remained robust as borrowing costs begin to ease. The Bank of England's first rate cut in July sparked interest in how much of this benefit has been passed on to customers. “Investors will be eager to assess whether lower rates have spurred changes in savings behaviour,” said Matt Britzman, a senior equity analyst at Hargreaves Lansdown.
Britain’s biggest home lender, Lloyds Banking Group, which owns Halifax, has already seen its earnings shrink compared to last year’s record profits, pressured by rising competition in mortgages and savings products. The bank’s net interest income - reflecting the difference between what it earns from loans and what it pays on savings - dropped 10% year over year in July. For this quarter, the lender is expected to report a pre-tax profit of £1.6 billion, down from £1.9 billion during the same period last year.
Barclays is predicted to show modest improvement, with analysts forecasting a pre-tax profit of around £2 billion, slightly higher than the £1.9 billion it earned last year. Similarly, NatWest is on track to report £1.5 billion in pre-tax profit, up from £1.3 billion year on year. HSBC is expected to be slightly down to $7.6 billion from $7.7 billion – it’s first results under new boss Georges Elhedery who has already announced a swathe of job and cost cutting.
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Lending activity, including mortgage approvals, has shown some early signs of recovery, thanks to declining borrowing costs. However, Gary Greenwood, a research analyst at Shore Capital Markets, warned The Independent that budget-related uncertainty could have dampened borrower activity. “Some borrowers may have adopted a wait-and-see approach, but we expect things to pick up once the budget situation becomes clearer,” he said.
No matter what the result, the big banks will maybe rue the timing of their announcements. Rachel Reeves has been scrambling to find a targeted £40 billion for her budget – capital gains tax is a likely target, and there has been considerable talk in government circles about a potential raid on the banks’ bumper profits. Sir Keir Starmer has specifically declined to rule out higher taxes on banks even though bankers have been keen to point to a recent PwC report that showed that the tax burden for a British lender was 45.8%, compared to 27.9% in New York, or 38.6% for Frankfurt.
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Jeremy Hunt, now shadow chancellor, cut the bank corporation tax surcharge from 8% to 3% in early 2023 when he raised corporate taxes from 18% to 25%. Hunt said raising taxes on banks would backfire. “It would be the most counter-productive own goal in history for a chancellor to hit the golden goose in the way some are speculating,”
Photo credit: Tim Green aka atouch This file is licensed under the Creative Commons Attribution 2.0 Generic license.
