Lloyds Banking Group has taken the first step to becoming a large private landlord as it searches for new sources of revenue in an era of low interest rates

The retail and commercial bank has just launched a private rental business, which aims to buy more than 1,000 residential properties over the next 18 months.

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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.

Project Generation

The bank expects to have its first tenants within the next few weeks, at a recently-completed development of 45 apartments in Peterborough.

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.

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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.

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.

Potential exposure to reputational risks

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 will 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.”