Data crunching by Canadian bank RBC suggests that recent movements in the residential mortgage market have been favourable to the UK banks, though competition is eroding some of those gains.
Residential mortgage spreads in the final quarter of 2024 increased 17 basis points for 2-year products and 4bps for 5yr products, but in 2025 so far spreads are 10bps lower
For 2yr products, Lloyds Banking Group PLC (LSE:LLOY), the market leader, increased its spreads the most in quarter four amongst the incumbent banks, said RBC, particularly through the Halifax brand (+25bps q/q).
For 5yr products, Barclays increased its spreads the most (+10bps q/q).
Among the challenger banks, Metro, which RBC notes already has the highest residential mortgage spreads among peers, has been most aggressive at increasing mortgage spreads (14-39bps).
In the professional market, buy-to-let specialist OSB is still seeing mortgage spreads under pressure, says RBC, especially with growing competition from Nationwide that has led to spread pressure.
For all the banks, there is better news on the deposit front, says RBC, with some shift from term deposits into current accounts for households.
UK households are also continuing to build cash reserves, with, overall, a net inflow of deposits in the first two months of 2024’s final quarter (households +£29.8bn; corporate +£0.8bn).
“The slowing and reversing of deposit migration should be helpful for UK bank NIMs (net interest margins)."
Shares in Lloyds were flat at 61.6p.