Lloyds counts cost of HBOS takeover and property slump as 500,000 customers slip into negative equity

Published 28th Feb 2009

The number of mortgage-holders borrowing from Lloyds Banking Group that are trapped in negative equity surged last year to half a million, the group, which is 43 per cent owned by the taxpayer, revealed yesterday.

The bank, which controls 28 per cent of the mortgage market, said that most of these homeowners were customers of HBOS, the bank that owns Halifax and was rescued by Lloyds TSB last month.

HBOS, Britain’s biggest mortgage lender, revealed that 381,669 customers, about 16.8 per cent of its mortgage book, owed more than the value of their homes. At Lloyds TSB, 162,000 homeowners, 15 per cent of its mortgage book, were in the same position.

These figures compare with only 0.1 per cent of customers of each bank – a total of less than 4,000 households – being in negative equity at the end of 2007.

The number of customers at least three months behind with their mortgage payments rose by 40 per cent.

David Black, at Defaqto, the financial data provider, said: “Lloyds TSB has one of the best-quality mortgage books in the industry, but clearly the situation is not as good at Halifax. If the situation is this bad at Lloyds, Lord knows how other lenders are faring.”

Michael Saunders, chief economist at Citigroup, said last month that the bank estimated homeowners with negative equity was up to about 1.2 million, from 100,000 a year ago, out of a total of between 11 million and 12 million mortgages. “There is no sign that the decline in house prices – and hence the surge in negative equity – is yet close to ending,” he said.

He said in December that about one owner in four could be in negative equity if prices fell by a total of 30 per cent by 2010, as many analysts expect.

The Council of Mortgage Lenders, which represents 90 per cent of mortgage lenders, said that the number of those who were in arrears had risen to 220,000 and it expected the figure to hit 500,000 by the end of this year.

HBOS plans to write off £1.12 billion in losses related to bad mortgage debts in 2008, a huge rise on the £28 million loss that it made on residential mortgages in 2007. Lloyds TSB will write off £167 million in bad debts related to home loans for 2008, compared with only £18 million in 2007.

A year ago HBOS was still offering 125 per cent loan-to-value deals via its Birmingham Midshires brand. There were more than 220 deals available two years ago that loaned up to 100 per cent of a property’s value on the market. There are only ten such deals available now, according to Money-facts.co.uk, the financial website.

Banks and building societies fear that if borrowers in negative equity default on their home loans, that potentially would force lenders to repossess homes worth less than the debts secured against them and sell the homes at a loss.

Ray Boulger, of John Charcol, the broker, said: “Every lender has been caught off guard by the speed and the extent of the fall in house prices. The worry now for lenders is that profits will be hit as an increasing number of borrowers in negative equity also get in trouble with their mortgages.”

The gloomy figures coincide with the latest data from the Land Registry showing a 15 per cent fall in house prices over the past year, raising the spectre of widespread negative equity blighting up to half of households in the UK. A further 10 per cent fall in house prices this year, predicted by a number of commentators, would push the total number of homeowners in negative equity to five million, according to GfK Nop, the financial researcher.

Last week Barclays reported that the number of customers with mortgages worth more than 95 per cent of the value of their property had jumped from 0.3 per cent to 3.1 per cent in 12 months.

With most lenders unwilling to offer mortgages of more than 90 per cent of a home’s value, homeowners caught in negative equity could find it impossible to switch to a new lender when their present deals come to an end.

Source: ' times '

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