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reporting a £290,000 loss – less than the loss reported for Tenet Lime in February 2011 of £568,505. Of the property services groups Countrywide doesn’t split its results out but half way through 2012 it reported its estate agency and financial services group revenue up by 5% in Q2 and 10% year to date to £257m. Earnings before interest, tax, depreciation and amortisation were £15m in Q2 and increased by 17% to £20m year to date. LSL Property Services, encompassing Pink and First Complete, meanwhile said revenue across its estate agency and intermediary networks grew 17% from £12.3m in H1 2011 to £14.4m in H1 2012. The group arranged mortgage lending of £3.6bn in the first half of the year up from £3.2bn in the same period a year earlier. And Connells announced pre-tax profits of £19m in the first half of 2012 compared to £15m for the same period in 2011. Its results represent a 27% increase in profits compared to last year driven partly by an 18% uplift in mortgage adviser numbers since the middle of last year resulting in a 21% bump in mortgage business in the first half of 2012.
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RISK AND REWARD “You’re carrying all the liability and a huge amount of risk for that type of profit when you’re an AR network,” says Brodnicki. “And you’re always under the cosh for more charges, better quality, more this, more that. You have got to be brave enough to charge what is necessary to run a profitable business. As a broker I would want my network to be motivated to support me, help me and protect me. Not so that I’ve driven them to the point where it’s just not viable to survive – that puts my commissions and livelihood at risk. It’s perhaps easy to say that and harder to
deliver it though. But there has to be a balance and I think that’s value for money. Not price, price, price. Maybe Personal Touch has actually been very brave in declaring it wants to make a profit.” Duffy says much of the poor performance is down to legacy issues and fear. “If networks aren’t solvent today then it’s because they still haven’t adjusted their pricing from the ridiculous days of 2003 to 2008 which saw them operating unsustainably high commission tariffs in favour of the brokers, and which were underpinned by undisclosed panel appointment “kickers” and a whole range of opaque revenue lines from valuation reciprocation through to grotesque overrides on ancillary products. I can think of one network that at the time was paying its top three directors and propagandists over a £1m in total. Pure decadence,” he says.
CONSOLIDATION CONTINUES Most in the industry agree that all of these factors will manifest themselves in further consolidation. Home of Choice, Mortgage Times and Network Data were all large networks that operated on a volume basis and landed their ARs in hot water when the business became unsustainable. Members either went bust, went elsewhere or went to larger firms that rescued them out of administration. Indeed we have already seen property groups wrangle over various smaller businesses with Countrywide buying up Mortgage Intelligence, Mortgage Next, and FYB Network. LSL Property Services has also been on a buying spree clocking up Home of Choice, Linear and Pink Home Loans. Sesame meanwhile recently announced it had acquired Melton Mowbray’s packaging arm – presumably
...it’s because we treat all our clients as individuals and genuinely care about adding value and income to their businesses.
www.mortgageintroducer.com MORTGAGE INTRODUCER JANUARY 2012 33 OCTOBER 2012
to give it proprietary distribution of specialist mortgage products. It’s not all bleak though. Yes costs are rising and yes the standalone network model looks set to fall by the wayside. But most networks have cottoned on and are attempting to build businesses that generate profit in other ways. Most of the large networks are owned by insurance companies – Sesame by Friends Life, Openwork by Zurich etc. Others are already part of larger groups – Legal & General being the prime example. And then there are those sitting in large property services groups which generate income through valuations and cross subsidisation. “If you can’t sell the house, the conveyance or the survey and you can’t create value out of the customer in some other way through insurance for example, I think it will be increasingly difficult to make a significant amount of money,” acknowledges Crocker. “The control environment is getting stricter and stricter and the cost of claims, PI and fines aren’t going down. It seems brave to take all of that on if you’re only providing advice. And equally it seems inevitable that companies will keep diversifying.”
KNOW YOUR NETWORK Ultimately lenders need networks because they deliver the quality that the FSA is demanding. Networks also feed their need for volume quickly and efficiently. As it stands there are likely to be fewer larger networks generating relationship value for the companies they sit underneath. From the broker’s perspective there is something to be learned from lenders’ role in this evolution. They are demanding to know their broker: that means brokers should know their network in equal measure.
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