Lloyds Bank: House prices could drop by 8% next year

Lloyds Bank has said it is focusing lending on “slightly better off customers” as it warns that house prices could fall by 8% next year or even by as much as 13%.

The bank’s chief financial officer William Chalmers, said in a widely reported call with journalists that the lender is “deliberately ensuring that we lend to customers who are best placed to withstand potential future stresses on the macro level and in their own personal circumstances."

It comes as an interim management update from Lloyds, the UK’s largest mortgage lender, showed it is anticipating a base case 7.9% drop in house prices next year.

The best case scenario would be a 2.7% decline while it could be as ahigh as 12.9% depending on the economic environment and direction of interest and mortgage rates.

The lender’s base case scenario for this year is 5% growth, with 7.9% and 0.5% declines in 2023 and 2024 before growth returns to 2.5% in 2025 and 2.3% in 2026.

That would suggest average house price growth of just 0.2% over the next four years.

At worst, the average could be a 5.5% decline to 2026 or a 5% rise in the best case scenario.

These estimates are likely to inform the bank’s lending strategy and potentially the ability for buyers to fund home purchases with mortgages in the coming years.

The trading update showed Lloyds has set aside £668m to cover bad debts as rising interest rates make loans and mortgages less affordable.

Chalmers told journalists: “The one request (from the new government) would be for a period of stability…that in turn will help us to support customers, retail, commercial and insurance, navigate what will be a tougher macro environment going forward.”