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Lloyds Reports Increased Profits Amidst Concerns of Prolonged Housing Market Decline

 Lloyds Banking Group, the UK's largest mortgage lender, has revealed a rise in pre-tax profits to £5.728 billion for the nine months ending in September. The surge in profits is attributed to higher base interest rates set by the Bank of England, resulting in a 7% increase in income compared to the previous year. However, alongside the positive financial report, Lloyds has issued a warning, projecting a continued decline in house prices until at least 2025.

According to Lloyds' forecasts, house prices are expected to decrease by 4.7% in the current year and a further 2.4% in 2024. The bank anticipates a recovery in the housing market with a growth of 2.3% in 2025, as per estimates based on Halifax's House Price Index. This cautious outlook on the property market was disclosed as part of Lloyds' third-quarter results for 2023.

The net interest margin, a key indicator of lending profitability, increased to 3.15% from 2.84% during the same three quarters in the previous year. However, this margin experienced a slight dip to 3.08% in the final three months of the reporting period, coinciding with a £500 million increase in deposits as people opted to save more.

The Bank of England's base rate hike to 5.25% aimed at promoting saving and curbing inflation has led to higher savings and mortgage rates. The average two-year fixed residential mortgage rate is now at 6.34%, and the average five-year deal stands at 5.89%, according to Moneyfacts.

Despite the positive financial performance, Lloyds observed a decrease in the amount set aside for potentially unrecoverable loans, totaling £187 million in the third quarter, compared to £419 million in the second quarter. Credit conditions were characterised as "broadly stable," and assets were described as "resilient."

Lloyds remains optimistic about the full 2023 financial year, reaffirming its guidance with a forecasted net interest margin of more than 3.1%. Charlie Nunn, the Chief Executive of Lloyds, characterised the results as a "robust financial performance."

In a parallel release of financial results, Santander, another prominent mortgage lender, reported an increase in some borrowers being in arrears, particularly in mortgages, unsecured personal loans, and overdrafts. Santander foresees a potential 7% decline in house prices in 2023 and an additional 2% decrease in the following year, citing a downturn in mortgage applications.

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