Lloyds Banking Group PLC and other lenders benefit from rising mortgage rates, but that may not last long

UK banks have seen a surge in mortgage applications accompanied by a sharp rise in prices after the chaos that followed the mini-budget, according to new data from Barclays.

The bank notes, however, that pressure on incomes is mounting, as household spending begins to decline, while higher rates on mortgages have long-term implications.

Barclays analysts estimate that the average price of 2-5 year mortgages in the UK has risen by around 170 basis points (bps) – 1.7% – since September 23, 2022, to around 6% .

“This is expected to put pressure on customer affordability and increase uncertainty about the outlook for house prices, although banks have a level of resilience to falling house prices through portfolios. of low LTV loans,” the analysts said.

The pass-through of deposits to retail instant access products remains weak, which is also generating favorable earnings with only 12% of September’s 50 basis point rise – 0.5% – being passed through so far.

It’s also good for banks’ net interest income, Barclays analysts said, but noted “downside risk from a potential policy limiting remuneration of reserves held with the central bank.”

Lloyds Banking Group PLC (LSE:LLOY) comfortably held the largest share of the UK mortgage market in 2021 according to Statista, followed by NatWest PLC and Nationwide.

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