Broker franchise group Mortgage Choice enjoyed a solid pick-up in mortgage settlements in the year to June but not enough to stop its loan book running off, and not enough to drive earnings growth.
Lenders settled A$10 billion of loan applications that came through Mortgage Choice brokers in 2019/20 – an increase of 7 per cent over the previous year. However, the value of the loan book fell 1 per cent to $54 billion.
Despite the increase in settlements, Mortgage Choice has not got back to the level of business it was doing a few years ago, when settlements were around $12 billion. The value of the loan book has been falling for two years.
Mortgage Choice chief executive Susan Mitchell said the company has been in business for 30 years and it has a mature book. A reasonably high level of payouts is to be expected.
The company reported a net profit of $9.4 million for the year – down 31 per cent from the previous year.
Part of the fall was due to the company operating for the first full year under a revised remuneration model introduced in 2018, which gives a bigger share of commissions to brokers.
In addition, trailing commission fell because of the smaller loan book and there were some restructuring costs.
On a cash basis, adjusting for the net present value of trail commissions, profit fell 16 per cent to $11.7 million. And on an “adjusted cash” basis, excluding restructuring and other one-off costs, the results was $12.4 million – down 4 per cent.
Upfront commissions remained steady at an average of 65 basis points and trails were down a touch at 18.4 per cent. The payout to brokers was 77.6 per cent of the upfront commissions and 71.9 per cent of trails – an average of 74.1 per cent.
Franchise numbers fell again through the year – down from 391 in July last year to 385 at June 30.
Mitchell said the company is actively recruiting franchisees and the addition of 14 new franchisees through the year was a good sign.
However, the company is a long way from the good old days of 2017, when it had 452 franchisees.
The financial planning division, which was rebranded FinChoice, reported another loss. Its deficit increased from $88,000 in 2018.19 to $705,000 in the year to June.
The mortgage broker market has proved to be volatile over the past year. According to Mortgage and Finance Association data, broker share of mortgage sales hit a peak close to 60 per cent in March last year before falling back to 55 per cent at the end of the year and then 52 per cent in March.
Mitchell said the fall in the March quarter was due to the fact that banks were dealing directly with their customers over COVID-19 issues and other lending issues.
She said the latest MFAA figures show a recovery in share in the June quarter.