UK mortgage application margins have dropped over the summer with banks collectively cutting rates by 30bp (0.3%) since the end of June.
Lloyds, though, seems to be an exception, says CS, and wrote a lot of business at opportune margins over the past year.
Competition will affect margins going forward, but the prospect of an interest rate hike is rising and unsecured consumer lending is ticking up again, both of which are helpful.
Shares in Lloyds, in particular, have underperformed this quarter to date on mortgage margin concerns, says CS, but current developments are consistent with estimates for 2021, while it expects net interest margin (NIM) in 2022 will be higher.
The broker is a fan of the UK bank sector but Lloyds remains CS’s top pick on its by earnings outlook and position as the most geared to a UK retail banking revenue recovery.
CS’s target price is 61p against 42.4p today.