Lloyds’ share price near £1: has the easy money already been made?

Lloyds Banking Group‘s (LSE: LLOY) share price climbed almost 80% in 2025 – but traded largely sideways throughout the last month. Could this signal the beginning of the end for a rally that saw it come within pennies of £1 per share?

As we head into a new year filled with challenges, I’m wondering how the UK’s shifting economic landscape could affect the shares. But first, let’s summarise how we got here.

A comeback king

Lloyds has quietly turned into one of the UK market’s big comeback stories, and 2025 has been a standout year for long‑suffering shareholders. With the share price now hovering just under the psychologically important 100p mark, it’s up around 166% over the past five years. That surge has been helped by rising interest rates, chunky share buybacks and a more upbeat view on the UK economy.

But at the heart of the story is profitability. High interest rates boosted Lloyds’ net interest margin, the deficit between what it pays on deposits and what it earns on loans. Naturally, that translated into stronger earnings, helping the firm accumulate extra capital.

Feeling generous, management decided to hand a favourable chunk of that extra cash back to shareholders. The bank initiated a £1.7bn share buyback programme in 2025, helping boost confidence in both its balance sheet and future cash generation. On top of that, investors are still getting a solid income stream, with the dividend yield still sitting near 4% despite the rising share price.

Now, forecasts from independent analysts point to steady, mid‑single‑digit payout growth into 2026 and 2027.

But don’t get too excited yet…

As a new year dawns, the backdrop for Lloyds is changing — and that’s where the next phase of the story lies. The Bank of England has shifted from raising rates to cutting them, and markets expect more reductions through 2026. That’s likely to gradually shrink the bank’s interest margin benefit as loans reprice lower.

At the same time, the UK economy and housing market look more stable than they did a couple of years ago. This is good news for Lloyds’ big mortgage book and should help keep loan losses in check. Put simply, the bank’s moving from a ‘beneficial higher rates phase’ into a more normal environment where growth is likely to be steadier rather than spectacular.

It’s also worth noting that if interest rates fall quicker than expected, a sudden profit slip could shake investor confidence. In an extreme case, a slip back towards stagnation or recession could hurt loan demand and dent profits.

So has the easy money in Lloyds already been made?

With Lloyds shares now well above their attractive days near 50p, the undervaluation story’s weakening.

As we head into 2026, it seems more logical to view it as a dependable income and buyback machine, rather than a lucrative recovery play. For income seekers, the key things to watch from here are dividend cover, the scale of future buybacks and trends in bad debts.

So while another 80% price rally looks unlikely, I think it’s still worth considering as part of a diversified income portfolio.

The post Lloyds’ share price near £1: has the easy money already been made? appeared first on The Motley Fool UK.

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Mark Hartley has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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