During the period, LSL said the residential exchange transactions market was down 29 per cent year-on-year and the mortgage lending market declined by 10 per cent.
David Stewart, group chief executive, said although its results had been affected by market-wide delays in residential sales exchanges and conveyancing hampering profits by more than £6m, its underlying profit was 17 per cent higher than 2019 when housing market conditions were more comparable. The group said this £6m shortfall would have been made up if residential sales conversion been at historical rates, and would have pushed its profits above £20m.
Stewart added: “We expect that the H1:H2 profit split will revert to its long-term profile, in which we earn the majority of profits in the second half of the year.”
Financial services sees record mortgage lending
LSL’s financial services division, which comprises Primis Mortgage Network, TMA Club, Linear Financial Services and Embrace Financial Services, posted a six per cent rise in lending value to £20.5bn – a record for the segment.
The division saw its revenue rise two per cent annually to £39.9m and its underlying operating profit dropped from £7.8m to £6.1m. On a statutory basis, operating profit was £4.9m, up from £3.9m the year prior.
LSL said the revenue mix of its financial services division proved the significance of its insurance business both on a standalone basis and during the arrangement of a mortgage. In the first half of the year, this was split equally between mortgage-related and insurance-related revenue.
Mortgage fees accounted for 39 per cent of revenue in H1, flat on last year, while insurance fees made up 42 per cent, a slight dip on the 45 per cent share last year. Some 19 per cent of revenue was generated by other fees.
Jon Round, group financial services director at LSL, said: “We are delighted with the continued growth of our intermediary businesses, particularly given the strong market conditions that existed in the first half of 2021.
“Our broker’s focus on looking after their clients, coupled with a buoyant remortgage market has delivered further growth in lending volume and market share. The second half of the year has also started well with July seeing record mortgage completions.”
Additional advisers benefitting networks
LSL’s financial services networks reported a 10 per cent increase in revenue as it benefitted from higher adviser numbers.
During the period, total financial adviser numbers were up 186 to 2,930 on the same time last year, a seven per cent rise.
Gross revenue generated by each adviser on average was £43,600, a dip on the £46,600 generated last year. LSL said advisers joining the business took time to reach full productivity and therefore made a small contribution to turnover in the year they joined. The revenue for the rest of 2022 is expected to show the results from advisers who joined in the second half of last year and the first half of this year.
Excluding product transfers, gross purchase and remortgage completion lending rose by 11 per cent to £15.2bn during the period and its market share expanded to 10.1 per cent. Including product transfers, the network businesses completed £20.5bn in gross mortgage lending.
Underlying operating profit for this part of the financial services division was relatively flat at £7.5m, up from £7.4m last year.
Its underlying profit margin contracted to 36 per cent, down slightly from 40 per cent last year. The group attributed this to investments and some costs which returned to pre-pandemic levels such as broker events and marketing support.
Stewart added: “Small, independent mortgage brokers typically perform well in more difficult market conditions, and this can be seen in the strong performance of our financial services network business.
“There was a general shift away from house purchase to remortgage business, as consumers sought to secure their payments in the light of increased economic uncertainty and rising interest rates. Across the market, this was reflected in lower protection sales, but we estimate that LSL advisers increased their protection market share further, building on past success we have had in increasing the focus on this area.”
Conveyancing delays and fewer purchases impacting revenue
The financial services other division, including valuation firm LSL Property Services, saw revenue fall £1.7m year-on-year which the group said was mainly due to a materially smaller purchase market.
It also posted an underlying operating loss of £1.3m, compared to a £400,00 profit last year. Again, LSL said this was due to continued investments in other areas, such as the costs of establishing the Pivotal Growth joint venture and its five-year mortgage and protection partnership with The Property Franchise Group (TPFG).
It said the TPFG partnership would “continue to act as a drag on profitability” in 2022 while Pivotal Growth posted a net loss of £200,000 in H1 following acquisition costs and overheads.
Pivotal Growth had a “slower than expected momentum” in acquisitions, LSL said, which prevented it from reporting a profit as deal costs exceeded income. It has since acquired four mortgage firms and a positive contribution is expected in 2023.
Direct-to-consumer operations in the financial services other businesses were affected by lower activity in the new purchase market and delays in the conversion of residential sales pipelines, due to conveyancing problems.
