House prices fall for first time since 2012: What's next for Lloyds share price?

With UK house prices facing unprecedented drops, the UK's biggest mortgage lender, Lloyds, faces an ever-deepening crisis. What's next for Lloyds' share price?

It's no secret that the UK's £70.4 billion mortgage market has been in dire straits in 2020. House buying and developer activity have ground to a halt as a result of Covid-19, while mortgage holidays and debt defaults have skyrocketed.

In spite of this, it still came as a shock to City analysts this morning when Nationwide Building Society released their much-anticipated market report, which revealed the grim news that UK house prices are due to experience a year-on-year fall for the first time since 2012.

Given that home buying and mortgages are a vital engine of the UK economy and one of its most dynamic sectors, this news does not bode well for any planned recovery. Among those who will be most concerned at this morning's news is Lloyds Banking Group, the UK's biggest mortgage lender with more than £42.5 billion of mortgage debt on its books.

Let's take a closer look at what the house price drop might mean for Lloyds' share price and the mortgage market more generally.

Lloyds share price set to face unprecedented turmoil

It's hardly as if Lloyds, one of the largest and most respected banking operations on the planet, was performing well prior to this morning's news. Before markets opened on Wednesday, Lloyds' share price had already dipped to a near-historic low of 30p and continued to drop as soon as the trading floors opened in London this morning.

Almost all of its recent turmoil can be pinned on the recent economic crisis. As the UK's largest mortgage lender, Lloyds has been particularly hard-hit by the wave of non-payments and defaults prompted by the shutdown of the economy.

Profits crashed 95% in April as toxic debts began to mount on Lloyds' balance sheets. Just two weeks ago, the UK Financial Conduct Authority (FCA) fined Lloyds £64 million over allegedly mistreating mortgage customers, accusing them of aggressively attempting to collect unpaid mortgage debts. This, in turn, prompted a further drop in share price, as Lloyds' most valuable asset, its reputation, took a beating.

Can the UK mortgage market recover in time?

What does the UK house price drop mean for Lloyds and other major FTSE-listed mortgage lenders? While there have been house price reductions in the UK in recent years, this is the first time in eight years that the entirety of the UK will post an annualized price drop. As mentioned, the property market has historically been one of the most dynamic sectors of the UK economy, proving vital to the post-recession economic recovery.

The fall in prices is likely indicative of an unprecedented collapse in demand, which will likely remove a major source of revenue for Lloyds and other major mortgage providers such as Royal Bank of Scotland (RBS) and HSBC. Mortgage products are arguably Lloyds' best-selling product, and there is little chance that sales will be revived in the year ahead.

In addition, economists have already pointed out that the drop we have already seen will likely get worse in the year ahead, especially as furlough schemes wrap up and mortgage defaults skyrocket. You do not need a photographic memory to recall how financial giants that seemed as unassailable as Lloyds once was, such as the Lehman Brothers, were brought down partly by toxic mortgage debt.

Lloyds has a much higher share of its resources invested in mortgages, meaning that it has more to worry about than RBS or HSBC. However, both banks will be looking nervously towards Lloyds in the coming months to see if they can drag themselves out of this deepening crisis.

How to trade UK bank stocks with IG

Looking to trade Lloyds and UK bank stocks? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Lloyds Banking Group’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.