In its trading update for the six months to 30 June 2023, LSL said its independent mortgage broker business model demonstrated “resilience and agility” as the firms’ purchase and remortgage market share rose from 6.2 per cent to 6.6 per cent.
The direct-to-consumer companies which were previously owned by LSL and now under Pivotal Growth are still members of Primis and TMA Club, and their combined distribution was stable at 3.8 per cent.
The overall share of the financial services’ purchase and remortgage market rose from 10.1 per cent last year to 10.4 per cent in 2023.
This comprises Primis, TMA Club, Qualis Wealth, Direct Life, Linear and LSL Property Services.
Shift to product transfer
Its financial services businesses saw less of a decline in business when compared to the wider market.
Compared to the first six months of last year, purchase lending fell by 27 per cent, which was less severe than the 30 per cent overall market reduction. Remortgage lending dropped by 15 per cent, compared to the 21 per cent fall across the market. Product transfer business rose by 48 per cent, compared to LSL’s estimate of a 15 per cent wider market growth.
LSL said the rise in product transfer business impacted its margin because of the lower proc fees.
It said while it expected this change in mortgage activity, the larger than expected June base rate rise suggested this would continue. LSL now forecasts that the pivot to product transfers will carry on for the rest of the year, which will impact its margins and full year profit.
Drop in adviser numbers
It said network protection sales were also “resilient” and the revenue from this business was unchanged compared to last year.
LSL said the “challenging market background” led to caution among network members regarding adviser numbers, which resulted in a five per cent drop in advisers during H1.
Going forward, it said the recruitment pipeline built up during the second quarter was the highest since September 2021 and would benefit the group in the future.
Surveying services dented by product transfers
LSL said its surveying division was most affected by market conditions as fewer valuations were conducted as borrowers opted for product transfers instead and did not require these services.
Activity also dropped in the buy-to-let, purchase and equity release markets and there were fewer instructions from lenders.
Lender instructions coming through to LSL dropped by 27 per cent, which it said was slightly better than the rest of the market.
It said instruction volume had started to recover but this was hindered by increasing interest rates.
In recent weeks, LSL said lender instructions had fallen by around 40 per cent which was “substantially below historic norms” and half on the levels seen last year.
LSL said it would focus on cost in the second half of the year while ensuring it has the capacity to meet demand when market activity recovers.
It said: “This means that in the short term, we will carry material excess staff costs so we can take advantage of the significant profit opportunity in more normal market conditions.”
Uncertainty ahead
LSL’s revenue dropped by 20 per cent to £104m, which it said reflected the 27 per cent reduction in purchase and remortgage activity.
It had lower costs due to the disposals and franchising of estate agency businesses as well as other cost measures. Its total operating expenditure was 31 per cent down on the previous year.
It had an underlying operating profit of £3.5m, which was down on last year’s £14.2m but in line with its expectations.
Looking ahead, LSL said the mortgage lending market was still uncertain, but it expected lower levels of purchase and remortgage activity, which would be partially offset by product transfers.
As a result, its full year profits are expected to be “substantially lower” than initially expected.
David Stewart (pictured), group CEO of LSL, said: “LSL made a lot of progress over the past six months, delivering important strategic projects. Market conditions have been challenging, and more recently have become more difficult, impacting this year’s financial performance.
“The more challenging market conditions in the short term will not prevent us from continuing to take the required steps to deliver on the identified opportunities for future growth. Our strong balance sheet allows us to take a long-term view and we will continue to invest to deliver our financial services network growth strategy and retain the capacity required to enable our surveying business to meet the future demands of our clients.”
He added: “Our financial services network and surveying businesses have established leading market positions and have performed strongly in recent years and will perform more strongly when the market recovers. Notwithstanding the near-term challenges the board remains confident about the group’s medium-term prospects.”
