The group, which owns Halifax and Bank of Scotland, said its mortgage book edged up 0.2% to £308.1bn since the end of December, in a stock market statement.  

The proportion of its home loan balances with a loan to value greater than 90% fell to 1.4 from 2.9% in December. The average LTV of new business increased to 62.9% from 61.7% over the same period.  

Its impairment charge for bad loans across the group’s business fell to £101m from £662m from a year ago.   

However, Lloyds Banking Group chief executive Charlie Nunn said the economic environment was tougher than expected, pointing to stubborn inflation and a slower economic recovery than anticipated, in an interview with Reuters.  

The Bank of England’s base rate has remained at a 16-year high of 5.25% since last August, despite inflation returning to its 2% target.     

Overall, Lloyds reported a 14% fall in first-half pretax profit to £3.3bn.  

Major lenders have seen profits cut back this year from sizeable returns seen over the past two years, as the base rate has stabilised and competition in the mortgage and savings market increases.    

AJ Bell investment analyst Dan Coatsworth says: “Given [that Bank of England] rates have stayed higher for longer, there may have been some expectation that Lloyds would have done rather better on net interest margins.  

“In a competitive market for mortgages and savings products the initial boost provided by the rate hiking cycle may have played out. 

“Whether or not the Bank of England cuts rates at its meeting next month, we are likely at the current peak. That suggests the only way for rates to go is down. 

“The main driver of Lloyds’ better-than-expected second quarter performance was a lower than anticipated impairment charge.

“While it is reassuring that the company is not facing a big uptick in bad debts, it does not tell us much about the underlying momentum in the business.” 

NatWest will post its interim figures on Friday.