Lloyds share price: prices of FTSE 100 banks and UK property

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FTSE 100 Bank: Recession Fears

Of course, record house prices paired with rising interest rates could be a double-edged sword.

Already, Rightmove believes that “the housing affordability crisis will have a greater impact on market behavior in the coming months…there will likely be month-to-month price declines over the of the second half of the year”.

Halifax chief executive Russell Galley agrees that “the house price to income ratio is already at an all time high, and with rising interest rates and inflation further squeezing budgets households, it remains likely that the rate of growth in house prices will slow”.

In April, Lloyds CEO Charlie Nunn warned that “the outlook for the UK economy remains uncertain, particularly with regard to the persistence and impact of higher inflation”. Additionally, he warned investors that Lloyds is “proactively contacting customers when we think they may need help and will continue to help them with financial health checks and other support.”

And, worryingly, the situation has already worsened. Chris Williamson, chief economist at S&P Global Market Intelligence, thinks the “economy is starting to look like it’s running on empty” with companies reporting “near stagnation in demand”. Outgoing CBI Chairman Lord Bilimoria believes the UK is “definitely” heading into recession.

It leaves the biggest mortgage lender in the FTSE 100 with the risk that the cost of living squeeze creates a mass of home loan customers who face both negative equity and unaffordable remortgage deals at the expiry of their fixed rates.

Moreover, the government cannot come to the rescue. In May, Capital Economics said that “the combination of further weakening in economic activity and further interest rate hikes will likely mean borrowing exceeds the OBR forecast for 2022/23 by $99 billion. pounds sterling of at least £10 billion”. This will limit the Chancellor’s ability to cut taxes and/or provide more subsidies to households.

It should also be noted that fears of a slowdown in the real estate market are spreading across the Atlantic. Home sales fell 2.4% in the United States and 9% in Canada between April and May. JP Morgan, Wells Fargo, Compass and Redfin are all laying off employees engaged in real estate.

BMO Capital Markets analyst Robert Kavcic thinks market expectations that have caused many Canadian investors and households to stretch their finances out of “fear of missing out” have begun to “collapse”.

And this balance between increased profits supported by higher mortgage payments and a recession-induced housing market correction leaves the investment case for Lloyds shares on the edge.

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