Lloyds Banking Group reported stronger-than-expected profits after the UK’s largest mortgage lender cashed in on a surge in demand for home loans.

The UK bank, which owns Halifax, said mortgage lending increased by £3.5bn over the three months to September, as it processed the highest number of applications since 2008.

The housing market has boomed since a temporary stamp-duty holiday and a so-called race for space, whereby many people have been reconsidering their lifestyles during the Covid-19 pandemic.

The boost in mortgage and business lending helped lift pre-tax profits, which were £1bn for the quarter. Analysts had been expecting profits of £588m.

It is also a significant improvement on the £50m profit reported during the same period last year, when the bank was forced to put aside large sums linked to payment protection insurance claims, which nearly wiped out its earnings.

Lloyds suffered a 16% drop in net interest income – which measures the difference between interest earned on loans versus paid on deposits – to £2.6bn after UK interest rates were cut to a record low of 0.1% in March.

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The Bank of England has warned lenders to prepare for negative interest rates, prompting Lloyds’ rival HSBC to warn it may start charging for current accounts in countries sauch as the UK to help make up for the drop in income.

Lloyds put aside a further £301m to cover a potential surge in bad debts linked to the Covid crisis, but this was less than half the amount analysts had expected.

The provision brings the bank’s total impairment charge to £4.1bn for the first nine months of the year. It now expects the full year total to be at the lower end of the £4.5bn-£5.5bn it predicted in the summer.



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