Lloyds Banking Group is on the verge of announcing that its entering the Private Rental Housing market. It’s part of the Group’s strategy of generating long-term diversified returns at a time when its net-interest income – the difference between the interest gained on lending and paid out in deposits – fell by 13% from £12.3bn to £10.7bn. We have reported before that the Group wants to move away from net interest income which explains its heavy focus last week on returns from wealth management as it seeks to replace low lending margins with increased fee income.
The rental market is dominated by small scale retail investors and Lloyds sees an opportunity to use its brands, knowledge of the housing market and expertise to leverage significant returns in the short term. And it’s a growing market, which will provide for significant cross-selling opportunities. The business will be managed at arms-length and separate companies to manage the assets will be established in each of the home countries but there will be no hiding from the fact that Lloyds will be renting out properties.
But it’s not without significant reputational risk. According to the Resolution Foundation, almost half a million UK families are thought to have fallen behind on rent as a result of the COVID pandemic. Despite the pandemic just 3% of families have been able to negotiate lower rent over the last 10 months. Can you imagine the headlines: “Lloyds employs bailiffs to force family out on the street”; “Lloyds refuses to replace cladding on suspect flats”; “Lloyds forcing tenants out of houses due to massive rent increases”. There is a reason why the institutional players have ignored the private rental market in the UK and that’s because the “short-termism of mainstream tenancy models has created a culture of churn and instability for renters, which undermines steady income stream for investors”. [Civitas, ‘The Future of Private Renting’]
Some of our older members will recall a few years ago some bright spark had the idea of selling white goods to new mortgage customers. The idea being you could sell them a mortgage, home insurance, PPI and then a fridge, cooker or microwave. It was only when we pointed out that Lloyds was in the business of financial services and that disgruntled customers would be lugging their broken appliances into the branch or ringing up asking for repairs that the idea was quickly shelved. I seem to recall we issued a Newsletter at the time entitled: “Trotters Independent Traders”. The bank also went into the energy and home telephone markets but again those proved to be a disaster. And going further back, Lloyds bought up chains of estate agents to form its own chain – Black Horse Agencies. This also turned out to be a serious diversion from building shareholder value at a time when Lloyds could and should have looked for core acquisitions.
Lloyds Banking Group should stick to financial services and leave the private rental market well alone. It will only end in tears.
Members with any questions on this should contact the Union’s Advice Team on 01234 262868 (choose Option 1).