Jefferies surveyed mortgage prices offered by UK banks including Lloyds, Metro Bank, HSBC Holdings PLC (LON:HSBC), Barclays PLC (LON:BARC), Royal Bank of Scotland PLC (LON:RBS), Nationwide, Santander and Virgin Money owner CYBG PLC (LON:CYBG).
“Lloyds screens optically as more aggressive on pricing (having spent most of 2018 and 2017 in the middle of the pack), at the bottom of the banks we surveyed for lower loan to value (LTV) products (conversely, it appears that the group has priced itself out of the market for high LTV products),” Jefferies said.
“Specifically, Lloyds is cheapest for most two-year and five-year products (which comprised about 90% of new lending at the industry level in the first quarter of 2019, according to data from the Bank of England).”
Lloyds targets more competitive remortgage market
The investment bank said a recent meeting with the chief financial officer of Lloyds suggested the bank was maintaining its volume weighted pricing at or higher than the market.
However, the bank is targeting certain channels such as the remortgage market where pricing is more competitive, Jefferies said.
Jefferies maintained a ‘buy’ rating and target price of 99p on Lloyds.
It said Lloyds should continue to “tick the boxes” on stability of capital and net interest margin -- the difference between interest earned on loans and money paid on deposits -- with the likely “controversial aspect” being management's guidance for flat other income in 2019.
But Jefferies does not expect the first-half results to act as a catalyst for the shares.
Metro Bank mortgage rates move higher
At the other end of the spectrum, Metro has the highest priced mortgage prices of the banks surveyed.
“According to our analysis, Metro has had among the market's highest advertised rates since January, with pricing moving materially higher since March,” Jefferies said.
“This could be supportive for margins at the bank for the second quarter, though we do not specifically model such a movement given the bank may have slowed mortgage volumes as a result of the recent RWA inflation and associated capital raise.”
Jefferies also has a ‘buy’ rating on Metro with a target price of 770p.
RBS the top pick
However, Jefferies said RBS is its top pick among UK-focused banks and the only lender that it sees the first half results as a catalyst for the investment case.
Jefferies expects RBS to deliver a common equity tier 1 ratio of more than 17% in the first half and to distribute a special dividend of 8p per share along with a 5p ordinary dividend.
It has a ‘buy’ rating and target price or 475p on RBS.
The survey showed HSBC has narrowed its price on two-year fixed rate mortgages over the past month while Barclays has left prices little changed over the past several months.
Jefferies has a ‘buy’ rating on HSBC and Barclays with target prices of 850p and 280p respectively.