Where next for the Lloyds share price after buoyant Q3 results?
Lloyds has posted Q3 pre-tax profits of £2 billion — a 96% rise year-over-year. But what’s next for the UK’s largest mortgage lender as the country's economic recovery continues?
The Lloyds share price (LON: LLOY) hit its five-year low of 24.72p on 25 September 2020, before rising to 49.89p on 28 May 2021. It then fell back to 42.56p by 10 September 2021 and has now risen to 49.57p today. But it’s still around 22p off its five-year high of 71.78p that it achieved on 19 May 2017. And with a roaring housing market and rapid economic recovery, Britain’s biggest retail bank could reach those heights again.
Lloyds share price: Q3 results
The figures underneath Lloyds’ increased profitability are sound. Total loans and advances are at £450.5 billion, up £10.3 billion in the quarter. Customer deposits have increased by £4.7 billion to £479.1 billion. And as a result, its loan to deposit ratio is 94%. This liquidity gives the bank the financial headroom to profit from further lending as the UK economic recovery strengthens.
During the pandemic, Lloyds had set aside £1.2 billion for loan defaults. This quarter, it’s been able to bolster its profits by releasing £84 million of this money. That’s on top of the £656 million already released so far this year. For perspective, in Q3 2020, the bank lost £301 million to bad loans.
And CEO Charlie Nunn said he saw ‘significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow through disciplined investment.’ He highlighted the bank’s ‘strengths of customer service, distribution, and cost management.’
Furthermore, Lloyds had a CET1 ratio of 17.2% in September, against the regulatory requirement of 4.5%, and a self-imposed target of 12.5%. In theory, this means Nunn has the capital to expend on further investments, increase dividends, or weather out what could potentially be a difficult winter.
Where do you think the Lloyds share price will go next?
Take your position on UK shares for just a small initial deposit with spread bets or CFDs. Spread bets are completely tax-free, while CFDs are free from stamp duty. You can also buy and take ownership of UK shares for just £3 with us. Open an account to start trading or investing in UK shares.
1. Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2. Deal three times or more in the previous month to qualify for our best rate.
Reliance on the housing market
Lloyds saw a £2.7 billion net increase in home loans in Q3, bringing mortgage lending for the year to £15.3 billion. This was the fastest rise in over a decade and mirrors the surging housing market.
In a ‘race for space,’ average house prices have risen 10.6% in the year to August to £264,000. The demand for mortgages has been spurred on by the stamp duty holiday as well as £197 billion of additional household savings built up during lockdowns. It’s seen the bank lend £12.8 billion to first-time buyers so far this year, far exceeding its £10 billion 2021 full-year target.
And net interest income increased 4% quarter-over-quarter to £2.9 billion, primarily due to this increased mortgage demand. With the Bank of England likely to raise interest rates soon, this figure could rise even higher.
With house prices continuing to increase, Lloyds is planning to diversify its revenue streams by purchasing 50,000 rental homes over the next ten years. This would make it one of the UK’s largest landlords. And the bank projects this will generate £300 million in pre-tax profit over the decade.
However, the Institute for Fiscal Studies predicts that UK CPI inflation will hit 4.6% in April 2022. If inflation rises even higher, interest rates will have to rise significantly. And this will increase mortgage costs. While Lloyds would benefit from higher mortgage payments, this also comes with a risk of loan defaults and falling house prices.
But the Lloyds share price is up 1% today. And if the UK’s economic recovery continues it could rise further. But unlike most of its competitors, it has no international operations. And for better or worse, that makes it more susceptible to domestic economic policy.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Act on share opportunities today
Go long or short on thousands of international stocks with spread bets and CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take advantage while conditions prevail.
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
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 spread betting and CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.