LLOYDS Banking Group swung to a £676m loss in the first half of 2020 as it was forced to set aside an extra £2.4bn to cover potential defaults on customer loans.

Lloyds said it had lent more than £9bn to businesses and granted more than 1.1 million payment holidays to consumers hit by the coronavirus pandemic.

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But it said it was readying itself for people to miss payments on loans after noticing a “significant deterioration in the economic outlook during the quarter”.

This could be made worse by the end of support measures such as the government's furlough scheme later in the year, even as the effects of the pandemic drag on.

In particular, it is worried about bad mortgage loans, which the bank blamed on an “additional reduction in house price forecasts” since its last trading update.

The extra £2.4bn of cash adds to a £1.4bn charge that Lloyds booked in anticipation of coronavirus-related losses in the first quarter of the year.

The amount was almost £1bn more than financial analysts had expected.

Will a payment holiday affect your chances of getting a new mortgage?

IT'S up to individual lenders to decide whether or not they take into account a coronavirus payment holiday when considering a mortgage application.

Although they can't see a payment break on your credit score, they may use other methods such as Open Banking where it will show up.

Here's what the banks have said they will do, according to MoneySavingExpert:

  • Barclays

Barclays has said that it won't necessarily use information of a payment holiday due to the pandemic when assessing a new mortgage application.

For example, a payment holiday with another lender won't have an impact on your mortgage application.

  • Bank of Scotland, Halifax and Lloyds

All three banks are owned by Lloyds Banking Group. They've said that it will take payment breaks into consideration when deciding whether to lend to you, even if you took it out due to the coronavirus crisis.

  • NatWest and RBS

Both are part of the same banking group, Royal Bank of Scotland. The policy here is that a coronavirus payment break would be considered but having one itself wouldn't prevent someone from being approved a new mortgage.

António Horta-Osório, chief executive of Lloyds, said: “We are, of course, aware that the support we are providing to our personal and business customers to help them through the current crisis will have a cost to the group.

“We believe this is the right thing to do, as supporting our customers directly aids the recovery of the economy from which we benefit.”

As a result of the extra charge, Britain’s biggest high street lender reported a loss of £676m for the three months to June, compared to a £1.3bn profit during the same period last year.

Lloyds said it had kept around 90 per cent of its high street branches open during the UK lockdown.

It added it had seen some signs of improvement in recent weeks, as consumers begin to spend more and the housing market picks up.

Hundreds of thousands of small businesses have been blocked from coronavirus loans in recent weeks as banks close their doors to new customers.

Credit card and loan payment holidays have been given to 1.7m Brits during the coronavirus outbreak – here’s what to do next.

Research shows that a third of Brits are baffled by financial jargon including loan-to-value and balloon payments.

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