Lloyds (LON:LLOY) share price hit 64p before the covid-19 pandemic-induced mini-crash which saw it fall to a low of 25p in September 2020. But it is back down to 48p in 2021 and has been highlighted as a stock to watch this month.
And true to form, it had a volatile start to 2022, hitting 55p on January 17, before dropping to 49p at the start of the week. And at 53p right now, expect more volatility.
Lloyds share price: property prices and interest rates
The main influence on the Lloyds share price will be the Bank of England’s response to soaring inflation in the UK. With consumer price index inflation at a decades-high 5.4%, economists including ING’s James Smith and Pantheon Macroeconomics analyst Samuel Tombs believe that multiple rate hikes are imminent.
And at its latest Monetary Policy Committee meeting, the UK’s central bank raised the base interest rate from its all-time low of 0.1% to 0.25%. It is no coincidence that Lloyds’ share price fell from 46p to 55p a month later.
Lloyds has approved £15.3billion in mortgages so far this financial year and has lent £39.7billion to first-time buyers since 2018. In addition, the bank is buying 50,000 rental homes in the over the next decade, with the aim of increasing profits by £300m. As the nation’s largest mortgage lender, rising rates could boost revenues.
But at the start of the pandemic, the Bank of England warned that property prices could fall by up to 16%. However, according to the Office for National Statistics, the average UK house price has risen by 10% over the past year to £271,000. And Lloyds Mortgage Director Andrew Asaam admits the direction of the housing market is uncertain, predicting “much flatter growth in 2022, at around 1%”, but that “nothing can be taken for granted”.
Additionally, Lloyds is also sensitive to the ripple effects caused by monetary policy tightening in the US, as the Bank of England is likely to mimic future US rate hikes to maintain currency stability. And although the Federal Reserve declined to raise interest rates this week, it warned that with inflation at 7%, it would “soon be appropriate” to do so.