According to LSL’s half-year results, within that, its gross purchase and remortgage completion lending fell by nearly a quarter to £11.5bn compared to the same period last year.
The report continued that the financial services division had grown its purchase and remortgage market share from 10.1 per cent in the first half of last year to 10.4 per cent in the first half of this year. It noted that this reflected the “strength of network mortgage advisers in remortgages”.
The company said that product transfer margin was “significantly lower” than purchase or remortgage, leading to a drop in margin and an eight per cent fall in gross revenues year-on-year to £134.2m.
Gross revenue per adviser has contracted by one per cent, however, completions per adviser are up 16 per cent, which it also attributed to an increase in product transfer volumes.
The total number of advisers fell by seven per cent to 2,718 year-on-year as adviser firms “remained cautious” about recruiting due to “economic and political uncertainty” and were “focusing on productivity”.
However, LSL said that it expected adviser numbers to grow as it had the largest adviser pipeline at the half-year market since 2021.
The report said that financial services network revenue totalled £19.6m, down from £20.5m last year, and underlying operating profit was £5.5m, a drop from £7.5m last year.
Pivotal reaches ‘critical mass’ of over 300 advisers
LSL said that Pivotal, its joint venture with Pollen Street Capital, had reached a “critical mass” with over 300 advisers.
Earlier in the year, SLS disposed four direct-to-consumer financial services broker firms: RSC, Group First, EFS and First2Protect to Pivotal.
It added that this would improve its “ability to win new distribution agreements and makes it a more compelling proposition for future acquisition partners”.
Pivotal’s balance sheet “remains strong” with a net cash balance of £36.2m and proceeds of £35.4m from the former disposals.
“The strength of our balance sheet together with continuing strong cash generation over the financial year enables us to continue to invest with confidence throughout the economic cycle.
“During the remainder of 2023, we will continue to invest in capability and technology, consider potential acquisition targets to build our financial services network business, as well as support Pivotal Growth in its acquisition of D2C brokerages,” it noted.
The company added that in February it had agreed a £60m revolving credit facility with major mainstream lenders, which would add further flexibility to its balance sheet.
Surveying and valuation hit by diminished lender appetite
LSL said that the surveying and valuation market has been impacted by “reduced appetite” from lenders, with “significant impacts” felt in equity release and buy-to-let markets where supply and demand has fallen.
The total number of jobs performed came to 212,000, 27 per cent lower than the same period last year.
Income per job also reduced by four per cent to £168 as volume with the “higher margin specialist sector” was impacted by market conditions to a greater extent than other sectors.
The firm said that revenue for the division contracted from £50.5m in the first half of last year to £35.5m in the first half of this year.
Underlying operating profit also fell from £13.1m in the first half of last year to £3.4m in the first half of this year.
“Self-help measures were put in place, including a modest reduction in the number of employed surveyors.
“However, our principal focus remains to retain sufficient capacity to meet the requirements of more normal market conditions, which means that we continue to carry material excess costs over the current level of demand, with a consequent anticipated impact on profitability in H2,” it noted.
The company continued that it had singled out “medium-term opportunities” to increase “diversification and reduce reliance on lender valuations and our exposure to mortgage market cycles” by growing revenue in direct to consumer services.
Estate agency restructured to save £110m
LSL said that the performance of its estate agency division was impacted by “strategic restructuring projects” during the first half of this year, with its 183 branches converted to franchises and the disposal of Marsh and Parsons.
The company said that the above actions lead to an annualized cost reduction of circa £110m.
The division reported an underlying operating profit of continuing operations of £0.6m, up from a £0.4m loss last year.
Estate agency market share was stable at around 1.9 per cent.
David Stewart (pictured), LSL’s chief executive, said: “The independent mortgage broker business model continues to demonstrate resilience and agility, with LSL members increasing their share in each of the sub-segments of the mortgage market during H1, as well as performing strongly in protection advice. Our estate agency franchise business is performing well and is expected to contribute a profit in the second half of the year, which represents an improvement under current market conditions when compared to our expectations for the previous predominantly wholly-owned model.
“The group has made significant progress to date in 2023, and although market conditions are more challenging than previously expected, our strong balance sheet gives the ability to invest for future growth. LSL remains very well-positioned to benefit when market conditions improve, and the board remains confident of our profitability over the business cycle.”
