UK's biggest mortgage lender expects housing market to slow

BRITAIN'S biggest mortgage lender expects the housing market to slow in the coming year, as rising interest rates make loans more expensive for borrowers and property prices finally begin to fall.

Charlie Nunn, chief executive officer of Lloyds Banking Group, said the bank's open mortgage book rose just 1 per cent in the 3 months through June and now stands at £296.6 billion. This growth was helped by customers rushing to remortgage as they seek to lock in prices before rates increase, bringing to an end several years of cheap deals fuelled by intense competition among capital-laden lenders.

"We in turn are actively engaging with our customers to ensure that they are aware of their alternatives and to help with any consequent steps," Nunn told analysts after the bank's earnings on Wednesday.

The Bank of England is preparing to raise rates several times this year in an attempt to stem the highest inflation in 4 decades. Nunn told journalists he sees many customers making "really difficult choices around spending" so they can afford their energy bills and other steeply rising costs.

UK homeowners are more vulnerable to rising borrowing costs because most fix their mortgage for 2 to 5 years, compared with as many as 30 years in the US. Bloomberg Economics expects the Bank of England to raise the benchmark lending rate to 2.25 per cent by year end.

As part of its downgrades to economic forecasts on Wednesday, Lloyds now expects house prices to grow just 1.8 per cent this year, and fall 1.4 per cent next year. For now, though, prices are defying the wider economic uncertainty, partly due to a lack of properties on the market, according to data from Halifax earlier this month that showed record prices after 13 per cent year-on-year growth.

Nunn said the current downturn was a "very different shock" compared to recent recessions, but said the playbook of stable employment and inflationary pressures had been seen elsewhere in Mexico, India and south east Asia. BLOOMBERG