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The Lloyds (LSE:LLOY) share price has gone gangbusters in 2025. At 77.2p per share, the FTSE 100 bank has soared 40% since 1 January.
To put that in context, the broader Footsie has risen by a more modest 6%.
But can Lloyds shares keep up the momentum? I’m not so sure. Here’s four reasons why I think they could topple from current levels.
Mortgage market cools
Lloyds is the UK’s largest mortgage provider, and so is dependent on a strong homes market to drive profits. Fortunately, the long-term outlook on this front is strong as the domestic population booms.
However, things are looking less rosy in the more immediate future. Mortgage approvals are sinking in response to Stamp Duty changes last month.
Net mortgage approvals for home purchases droppped by 3,100 month on month to 60,500 in April. This was the fourth drop in a row as demand from first-time buyers moderated. A continued decline could pull Lloyds shares in the same direction.
Economic gloom
While falling interest rates are providing some support, growing trouble for the UK economy could put extra pressure on mortgage demand. Indeed, this threatens to also derail demand across Lloyds’ other product lines, not to mention drive up loan impairments.
Domestic growth is under strain as tax rises weigh and business confidence drops. Additionally, Britain’s economy faces a slew of long-running structural issues like high public debt, regional inequality, and skills shortages in key areas.
And unlike other FTSE 100 banks like HSBC and Barclays, Lloyds lacks substantial exposure to overseas markets to lessen the problem and help it grow earnings.
Car crash
The payment protection insurance (PPI) scandal cost banks a combined £50bn in years gone by. Some analysts are tipping a similarly expensive outcome when the Supreme Court makes a decision on car lending practices in July.
If so, this could decimate earnings and have significant dividend implications for Lloyds. The Black Horse bank is the country’s leading motor finance provider.
To date, the bank’s set aside £1.2bn to cover any potential legal costs if the practice of ‘secret’ commissions from lenders to car retailers is deemed improper. This could prove way, way short of the mark.
Conversely, a favourable ruling from the Supreme Court could drive Lloyds’ share price higher. But the risks related to this saga remain uncomfortably high.
High valuation
Finally, I don’t think that Lloyds shares offer attractive value following their recent price spurt. In fact, I believe it actually looks slightly overpriced from an historical perspective.
With a price-to-book (P/B) ratio of 1.1, the bank trades at a slight premium to the value of its net assets. This is also higher than its 10-year average of 0.8.
Meanwhile, its price-to-earnings (P/E) ratio of 10.6 times surpasses the 7.9 times it’s averaged for the past decade. And its dividend yield of 4.5% is a good distance below the 10-year average of 5.8%.
Such readings leave the bank further in danger of correcting if news flow worsens. On balance, I’d rather find other UK shares to buy right now.
