Lloyds bank predicts 8% fall in house prices as its profits tumble

Larger-than-expected drop in profits to 1.5bn in third quarter comes despite rising interest rates

Profits at Lloyds Banking Group tumbled 26% in the three months to September as the UK's largest mortgage lender steeled itself for a potential surge in defaults as it predicted house prices would fall 8% next year.

The drop in profits was much larger than the 9.5% analysts had expected, and was the result of having to put aside an extra 668m amid fears that some loan and mortgage customers could default on their debts.