I have a major concern about Lloyds (LSE:LLOY) shares. However, there are also things to like, notably the company’s recent quarterly results. Let’s take a look at these now.
Excellent financial results
The bank’s first-quarter results for 2026 paint a positive picture.
Net interest income (NII) was up 8% from the same quarter a year ago to £3.6bn. This contributed to an overall net income increase of 9% to £4.8bn.
Operating costs were down 3% to £2.5bn, and the impairment charge fell by 5% to £295m. This helped the company achieve a statutory profit after tax of £1.6bn, a 37% rise from last year.
And the bank improved its net interest margin from 3.03% to 3.17%. All of this shows that the firm is becoming more efficient, and this margin expansion is definitely a cause for optimism.
The good news doesn’t end there, though, as its guidance looks quite promising. The company’s anticipating NII of £14.9bn this year, a big increase from the £13.6bn achieved in 2025.
Furthermore, analysts expect its earnings per share to rise by 30.8% in 2026, then by a further 20% in 2027.
However, even after this, one concern I have about Lloyds is its exposure to the UK housing market.
A proxy for UK housing
It’s well known that Lloyds is the largest mortgage provider in the UK. It owns 19% of all mortgages outstanding, and the gross value of its annual lending is 16.8% of the mortgage market.
The bank has also been quietly buying rental properties, boasting 7,500 properties valued at around £2bn.
Now, to see the full extent of the company’s exposure to the sector, we can see its UK mortgage book of £323.1bn is 69.8% of its total interest-earning assets of £462.9bn for 2025.
It also earned approximately £4.9bn from mortgage interest last year, which was 36% of its NII and 27% of its total income.
This isn’t a concern for some. For example, Savills has forecast that while house prices are likely to fall in 2026, in total they should rise by 18.5% by 2030. This is good news both for Lloyds’ mortgage interest and its property portfolio’s value.
I’m not so enthusiastic
However, I’m a bit more pessimistic here. A big reason for house prices increasing in value is the supply issues arising from high population growth, combined with a slow rate of housebuilding.
But I believe some factors have been overlooked. The UK has an ageing population and low birth rates. In fact, there are currently more deaths than births.
Right now, the population’s growth is being sustained by net migration. However, with an increasing anti-immigration sentiment in the UK, there are question marks about whether this will continue.
And affordability is becoming a bigger issue than before. For a house to be considered affordable, it shouldn’t be more than five times a full-time salary. However, the average house price is currently six to eight times higher.
All of this should put downward pressure on house prices in the long-term, which could hurt both the banks’ mortgage interest income and the value of its property portfolio.
That’s why I’m not currently interested in Lloyds shares.
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Muhammad Cheema does not hold any positions in the companies mentioned.
