In its trading update for the 10 months to 31 October, the group said fall throughs had “trended higher” in recent weeks.
LSL also said the mini Budget had caused a “marked slowdown” in the purchase market. This affected new sales agreed within its estate agency business, mortgage applications in its financial services division and valuation instructions in its surveying arm.
The group said there was a shift towards remortgaging in the mortgage market with expectations for this trend to continue into next year as borrowers look to reduce payments. However, LSL warned that increased interest rates and lender caution was limiting the number of remortgage cases, and as a result there were more product transfers.
LSL said capacity issues were easing as anticipated, but residential exchanges continued to be slow not just within the group but across the industry.
Mortgage business growth
LSL’s total financial services division, which comprises Primis Mortgage Network, TMA Club, Linear Financial Services and Embrace Financial Services, saw revenues rise three per cent to £67.8m year-on-year.
The revenue generated by its financial services network rose by nine per cent, owing to smaller mortgage and protection markets. Its share of the UK’s purchase and remortgage market rose from nine per cent last year, to 10.2 per cent this year.
LSL attributed this to its advisers’ “strong position” in the remortgage market. It said this was expected to sustain its market share next year.
Its financial services other revenue, which relies on the estate agency and new-build referrals, reduced by two per cent due to a contracted purchase market.
Its surveying and valuation business saw revenue rise nine per cent to £84.9m which LSL said benefited from new business from lenders, increased allocations from existing lender partnerships and a rise in direct-to-consumer revenue.
LSL said this result was “strong” considering the flat mortgage approval market.
Mortgage lending set to fall
Looking ahead, LSL said its profit split between the first and second halves of the year would revert to a more “typical profile”, in contrast to record property transactions in H1 2021.
It also said market volatility, which has seen some lenders withdraw business, would not continue in 2023 and the market would be more normalised.
LSL said the total mortgage lending market would reduce next year, but the decline in purchases would be offset by refinancing.
It added: “The housing market is heavily impacted by sentiment and has the potential to surprise on the upside. However, with the recent reduction in activity levels and continuing uncertainty over UK economic conditions, until we have greater clarity on the economic backdrop, we are cautious on the market outlook for 2023.”
A strong performance
David Stewart, chief executive of LSL, said the group traded strongly in the first half of the year and entered the second half “well placed to deliver a strong H2 profit performance”.
Stewart added: “Since that time, market conditions have been more challenging than previously expected, with the mortgage and housing markets being disrupted by political uncertainty and sharply increasing interest rates. Across the market, this has given rise to a reduction in mortgage activity and new house sales, and an increase in fall-throughs of previously agreed sales.
“This challenging background means that there is a wider range of potential outcomes for the full year than previously expected.”
Stewart said: “I am pleased to confirm that LSL’s performance has remained resilient, and we are confident that underlying group operating profit in the second half of 2022 will at least be broadly in line with the second half of 2021, with the possibility of a stronger performance depending on the volume of valuation instructions received from lenders.
“This includes additional costs incurred due to discretionary payments to over 2,000 colleagues to help alleviate the impact of significant increases in living costs. Around £600,000 of these costs will be reflected in 2022, with a further £800,000 to be paid in 2023 to cover the winter months.”
