Mortgage applications in June outperformed the same period last year, as the restrictions on the housing market eased, the bank said in its half yearly results to the end of June.
However, the lender said it was not certain whether this was “a sustainable development or reflects pent up demand”.
The bank highlighted the uncertain economic outlook and increased provisions for losses by more than £3bn.
Lloyds said the impairment charge is “largely for assets that have not currently defaulted” and the overall cost “will depend on the severity and the duration of the economic shock experienced in the UK”.
Overall, Lloyds reported a statutory loss before tax of £602m.
The group said lending for the period was broadly flat, but net income came in at £7.4bn, down 16 per cent, which reflected lower rates and action to support customers.
Arrears increase as repossessions paused
The number of mortgages more than three months in arrears increased to 1.6 per cent from 1.4 per cent.
The lender added the group has suspended all repossession activity on mortgage accounts until 31 October 2020, as a result the volume of cases in late stage arrears has increased.
But Lloyds said its mortgage portfolio is heavily weighted toward high quality lending, with the average mortgage loan to value (LTV) at 44 per cent.
The new business average LTV was at 63 per cent, and around 90 per cent of the portfolio has an LTV ratio of less than 80 per cent.
More than 472,000 payment holidays for mortgages have been provided by Lloyds since the start of the crisis, with 193,000 maturing. Of those that have matured 72 per cent have restarted payments.
Around 23 per cent extended their payment holidays and the remainder are in early arrears.
Customers extending their mortgage payment holidays generally have weaker risk characteristics than those without a payment holiday, Lloyds said.
However, the average LTV for customers extending their payment holidays remains relatively low at 52 per cent, compared to 42 per cent for customers who have never taken a payment holiday.
Group chief executive António Horta-Osório said: “The impact of the coronavirus pandemic in the first half of 2020 has been profound on the way we live our lives and on the global economy.
“We remain fully focused on helping our customers and the UK economy recover, in collaboration with government and our regulators.
“I want to express my sincere gratitude to all my colleagues across the group for their dedication and persistence which have allowed us to deliver vital banking services to our customers effectively throughout the pandemic.
“Although the outlook is uncertain, the group’s financial strength and business model allow us to help Britain recover and play our part in returning our country to prosperity.
“Our customer focused strategic plan remains fully aligned with the group’s long term strategic objectives, the position of our franchise and the interests of shareholders.”