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Lloyds Bank plans to become private landlord

Lloyds Banking Group PLC

Lloyds Bank plans to become private landlord

Initiative will involve buying and renting out new and existing housing stock across the UK

Lloyds is looking for new sources of revenue in an era of low interest rates © Luke MacGregor/Bloomberg

Lloyds Banking Group is planning to become a large private landlord as it searches for new sources of revenue in an era of low interest rates, according to documents seen by the Financial Times and people familiar with its plans.

The initiative, known internally as “Project Generation”, will involve buying and renting out new and existing housing stock across the UK, and aims to have its first tenants by the end of this year.

Lloyds also owns the Halifax, Bank of Scotland and Scottish Widows brands. The lender hopes to take advantage of its low funding costs, name recognition and knowledge of the housing market to become a major player in the sector, which is fragmented and dominated by small businesses and retail investors.

Lloyds is the UK’s largest mortgage lender and its commercial banking business has existing relationships with almost all the UK’s largest housebuilders. It has also directly invested in several housing projects with smaller developers in recent years through a partnership with Homes England.

The bank said: “As we stated in our full-year results and our strategic review last week, we are committed to broadening access to home ownership and exploring opportunities to increase our support to the UK rental sector.”

The radical plan highlights the pressure on retail banks to find ways to boost their income as low rates squeeze the profit margins on their traditional lending businesses.

As well as providing direct benefits through rental yield and house price growth, the bank is hoping the move will boost its existing businesses, for example by providing an opportunity to cross-sell rental deposit loans or insurance. It could also help fund Scottish Widows annuities. 

The UK had around 5.4m privately rented households in 2019, according to Knight Frank, and the number is expected to increase to almost 6m by 2023.

Lloyds should stick to financial services . . . the bank's reputation could take a hammering

Mark Brown, general secretary of BTU

Last year John Lewis, the cooperatively owned retailer, said it also planned to take advantage of the high demand from renters by building a residential property portfolio to offset weakness in its high street stores.

In addition to boosting its income, Lloyds executives believe their plan could fit with its stated social objective of “helping Britain prosper” by offering better quality and more professional services to renters than many existing landlords. 

However, employee representatives cautioned that the initiative would also expose the bank to reputational risks if tenants have problems with the bank or the outsourcers it hires to manage the properties.

Mark Brown, general secretary of BTU, a union for Lloyds staff, said: “Lloyds should stick to financial services. The private rental market is such a risky business and, if things go wrong, the bank's reputation could take a hammering.”

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