A major mortgage brokerage has settled an average of $1 billion a month in home loans in the last financial year, despite “considerable economic and market volatility” and “the negative impact that the prudential regulator’s blunt approach had on investment lending”.
Mortgage Choice settled a total of $12.2 billion in home loans over the financial year to 30 June 2015, 6.3 per cent more than in the last financial year, bringing the company’s average annual monthly settlements to more than $1 billion for the first time.
Overall, the group has seen marked growth, with cash profit up 10.7 per cent to $20.5 million and the company’s loan book growing by 4.4 per cent to $51.7 billion.
The company also grew its share of the market in 2016, rising from 3.65 per cent in the first half of the financial year to 3.76 per cent in the second half.
According to the company’s chief executive officer John Flavell, the mortgage business has been boosted by “strong network growth” — with more than 600 credit representatives (618) in the field for the first time, and franchisee revenue growth up 7 per cent on last year.
Mr Flavell said: “Part of our ability to grow our share in the market comes down to the number of our franchisees and the number of our loan writers. Whilst an increase in numbers can be pleasing, what you want to see is an overall increase in productive franchisees and productive loan writers. And we’ve been seeing that.”
He added that the company has also benefitted from automating its systems, and by introducing “automated provision of general insurance” to its customer base which has been “a wonderful revenue generating opportunity”.
Mortgage Choice “not alarmed” by declining loan life
Although the financial results show a declining average loan life — from 4.0 years in existing loans to 3.9 and from 4.7 years in new settlements to 4.6 (comparing March 2015 to March 2016) — Mortgage Choice has said that this was largely driven by “low interest rates and refinancers in a buoyant mortgage market”.
The company said that this trend is expected to continue as interest rates are “expected to stay lower for the foreseeable future”.
Speaking after delivering the financial results, Mr Flavell said: “We’re alert in relation to loan life, but we’re not alarmed.
“When you see a continuous cycle of cuts in the cash rate as we have, people don’t necessarily reduce their repayments by a corresponding amount. Accordingly, you see the rate of amortisation accelerate a little. And that’s what has led to this slight decline in relation to expectation of average loan life.”
Asked whether brokers should be concerned by the shortening in loan life and therefore diversify, Mr Flavell said that “diversification is always a solid business plan so long as the units of energy that you’re deploying to diversify is giving you a return commensurate with your efforts and endeavours”.
“I think diversification is always a good idea,” he said. “It makes sense to your customers and makes economic sense.”
He added that Mortgage Choice has recently diversified its offering by launching a new asset finance service “which has created a wonderful opportunity for [the company] to meet more of [its] customer's needs and generate revenue growth for [its] franchisees”.
Indeed, the financial results show that 10.3 per cent of Mortgage Choice’s revenue was generated from services other than mortgage lending, with gross profit for the financial planning arm growing by 38 per cent.
Mr Flavell said: “This [financial planning] business is now at the next stage of its maturity and I have no doubt that it will make a positive contribution to the group’s financial results from here on.”
However, he added that while the business is increasing the proportion of its revenue that is derived from sources outside of mortgages, “at [its] core [Mortgage Choice is] still primarily a mortgage business”.
He continued: “Making sure that we maintain our relevance in the market and capitalise the opportunities that the lending market presents has been, and will continue to be, a focus for us.”
A fully-franked final dividend of 8.5 cents per share was declared by the board, with the total dividend for the year coming in at 16.5 cents per share, an increase of one cent on last year.
Looking to the future, Mr Flavell said the company will “continue [its] transition into an omni-channel, integrated financial services company” and will “look to become [its] customers’ single provider for all of their financial needs.”
He continued: “Heading into FY17, I have every expectation that the market will continue to be complex — perhaps even more so than FY16.
“Our track record of delivering exceptional results in a challenging environment gives me the confidence to state that we have set ourselves up to thrive in FY17 and beyond.”
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