Protection sales at the Primis advice network and TMA mortgage club held up in the first six months of 2023 despite a highly unstable mortgage market.
However, LSL Property Services which owns the two distributors, warned that despite profits being as expected over the period, full year figures “will now be substantially lower than previously expected”.
In a trading update the firm revealed the group’s underlying operating profit of around £3.5m for the six months was broadly in line with expectations but this was down 75% from £14.2m a year ago.
However, looking towards the coming six months it warned: “While group underlying operating profit was broadly in line with our expectations in the first half, the recent change in mortgage market conditions will significantly impact second half group profits which are now expected to be lower than our previous expectations.”
It added: “The mortgage lending market in H2 remains highly uncertain, resulting in a wider range of possible outcomes for the group than usual.
“We now expect that there will be lower levels of purchase and remortgaging activity than previously forecast for the second half of the year, with this only partly offset by increased lower margin product transfers.
“Full year group profits will now be substantially lower than previously expected. We continue to expect group profits in the second half of the year to be an improvement on H1, reflecting a more typical split across the year.”
Protection sales ‘resilient’
In regard to the protection market, the firm said: “LSL Network protection sales were resilient despite the market conditions, with revenue unchanged compared to H1 2022.”
In the full year for 2022 LSL earned around £34.2m in revenue for protection and insurance fees.
Adviser numbers also fell by 5% during the period as LSL cited “caution by network members” but said “encouragingly” the recruitment pipeline at 30 June which was built during the second quarter was the highest since September 2021 and would benefit future periods.
Outlining the mortgage market woes, LSL said its purchase lending reduced by 27%, slightly less than the overall market reduction of 30%, and its remortgage lending decreased by 15% compared to the market which fell by 21%.
LSL product transfer business increased by 48%, compared to the market which it estimates was up around 15% and total LSL mortgage lending advice declined just 4%.
The firm said this reflected strong performance against the market, although higher product transfers impacted margin, due to the lower lender procuration fees – a shift it now expected to continue.
“Whilst this change in the nature and volume of mortgage lending was largely included in our expectations for H1, the most recent trading following the June interest rate rise indicates that this shift has increased further and we now expect these conditions to persist in H2, with a resulting impact on margins and full year profit,” it added.
More challenging short-term
Group CEO David Stewart 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.
“Notwithstanding the near-term challenges the board remains confident about the group’s medium-term prospects.”