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Mortgage networks under the spotlight

With the demise of several high-profile mortgage networks in 2009, Paul Thomas puts the balance sheets of some of the remaining distributors under scrutiny.

It is difficult to get an up-to-date picture of the state of mortgage distributors’ finances as most have only recently filed their accounts for 2008 but the figures act as a useful pointer to the financial position for some networks and big distributors.

Personal Touch Holdings posted a £4m loss for 2008. It is paying an escalating rate of interest on £7.7m loan notes from Lloyds Development Capital, which this year will reach 9.5 per cent. PTFS, however, posted a £2.5m profit for 2008. In 2009, PTFS lost 83 appointed representatives, the total dropping from 1,055 to 973.

But group sales director Dev Malle believes the business is well placed to take advantage of the consolidation of inter-mediary markets in 2010.
He says: “In 2009, PTFS network remained profitable every month and there was a substantial improvement in the group position. The business remains cash-positive.

“This puts us in an enviable position in the market and allows us to take advantage of the consolidation we believe will continue to take place in 2010.”

Pink Home Loans listed as Advance Mortgage Funding at Companies House saw a 47 per cent drop in revenue from 2007 to 2008, from £38.6m to £20.6m. It made a loss of £3.6m for 2008 after a £1.6m profit in 2007.

It also wrote down £2m on the value of BDS which it acquired during the year.

Pink managing director David Copland claims “exceptional costs”, including redundancies as a result of the credit crunch, contributed to the losses in 2008. “We had a business with high fixed costs and marginal income. During that period, mortgage lending dropped, appointed representative productivity dropped and it hurt us a lot more than it did the year before.”

But over 2009, the number of ARs at Pink rose to 412 from 355.

Mortgage Advice Bureau recorded a profit of just £6,913 in 2008 compared with £1.5m the year before. Company chief executive Peter Brodnicki says a decision to retain resources meant it was able to maintain service levels. Following an indifferent 2008, he believes the firm is looking at a significant profit for 2009.

Mortgageforce ended 2009 with a profit of £12,125. after a profit of £300,510 in 2008. Total revenue was down from £4.9m in 2008 to £3m in 2009.

’Any broker in business 12 months from now will be extremely well posit – ioned to do as well, if not better, than in 2006/07’

Managing director Kevin Duffy says tough market conditions mean that registering a profit is an achievement in itself and those who survive 2010 will benefit from a reduction in competition as more intermediaries go out of business.

He says: “Any broker in business 12 months from now will be extremely well positioned to do as well, if not better, than in 2006/07.”

Openwork grew its number of ARs by 106 in 2009, from 962 to 1,068, and improved on its £6.4m loss in 2007 with a £591,546 loss in 2008.

Home of Choice saw 37 of its ARs leave the company over 2009 and accounts for the year ended March 31, 2009 saw a loss of £54,874, an improvement on the previous year’s £1.2m loss.

Home of Choice chief executive Gerry O’Brien says many networks lost reps due to “a combination of the harsh economic climate and especially in the mortgage sector a lack of lending supply, which many advisers were reliant upon”.

He adds that the year ahead will remain difficult and distributors are hoping the general election will bring political stability.

He says: “We have come through the toughest two years that distributors have ever been through and conditions can only improve.”

Intrinsic Financial Services posted a pre-tax loss of £3.6m for 2008, although on an earnings before tax depreciation and amortisation basis it made a profit of £1.9m. It saw AR numbers increase in 2009 from 301 to 338.

Sesame Group made a £10m profit for 2008. However, 216 ARs left between January and December 2009, with total adviser numbers going from 1,783 to 1,567.

Which Network director Paul Day says: “We have seen some high-profile casualties and questions raised over the validity of the mortgage network model and even mortgage and protection-only advisers.

“However, there can be no doubt that if the mortgage network model was removed as a result of the past 18 months’ business failings, the resulting drop in competition would prove damaging to the entire industry and, ultimately, to the consumer.



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There are 14 comments at the moment, we would love to hear your opinion too.

  1. This is a useful article but surely MM could have obtained more up to date information from the networks directly – those who issued a “no comment” or refusal being named would lay bear the situation for everyone to understand.

    Additionally, what about LIME – I appreciate it is a subsidiary of TENET so could be classed as a IFA network but those AR’s, like me, who are LIME AR’s are pure mortgage advisers and reliant on LIME’s financial position.

  2. The whole financial services industry is bankrupt, if someone says it isn’t I will argue that it soon will be. Networks are a particular problem, just wait until their house of cards falls over and the FSCS bill goes through the roof.

  3. Would be interested to know about MSN. More Networks should have been shown on the report.

  4. With a majority of these networks posting loses and the average brokers income reducing by up to 50%. I suppose the only option is for these networks to increase costs to try to stay afloat.
    So poor broker gets hit again, more costs but no additional services in return to assist fill the income gap.

  5. Lovemore Dandira 6th February 2010 at 7:33 am

    This is an important article but it is rather a bit narrow. At this point in time advisors need to know where their principals stand financially. It would be a good thing for advisors to have access their principals’ financial accounts at least once every 6 months to avoid nusty surprises. I recently bought the accounts of New Leaf Distribution Limited (a mortgage network that seems to make its money from CeMAP & other courses), because the company is small and exempt from full disclosure, they only file abbreviated accounts which are pretty much useless. I think somewhere within the Financial Services & Markets Act should be a requirement for principlas to give their agents access to vital financial information where the Companies Act does not. This is not so much for the larger companies whose information is easily accessible, more for the smaller outfits currently shrouded in secrecy.

  6. I’m interested in the point that networks financial information should be more accessible. As most networks are Ltd co’s then you can purchase a copy of their accounts from Companies House.

    But perhaps I’m more interested in the idea that there are brokers out there who’d be able to understand a set of accounts!

  7. Dermot Brannigan, you are an imbecile of the highest order.

    With regards to the subject of brokers livelihoods being put at risk by network failure, you resort to playground name calling.

    Please tell us Sir, what is it you do for a living?

  8. Dermot Brannigan, you are an imbecile of the highest order.

    With regards to the subject of brokers livelihoods being put at risk by network failure, you resort to playground name calling.

    Please tell us Sir, what is it you do for a living?

  9. Dermot – totally agree with you on that one.

    We have above one anonymous (7.33am) saying that he wants to know where his principal stands financially….so go and check companies house out!! Doesn’t that comment itself prove some brokers really are not worthy of giving financial advice to consumers on their biggest purchase in life?

    I have been saying this for years. Brokers who don’t operate a fee based model will fail, and good riddance. They were/are simply focussed on remortgaging and finding new products and when the model wobbled, they could not think outside the box. No broker products = can’t sell them anything so end of their income…

    Gradually we are seeing this becoming a profession. Those who are not worthy will rightly fail.

  10. Lovemore Dandira 9th February 2010 at 2:58 pm

    @ Harry | 9 Feb 2010 8:49 am and Dermot Brannigan | 8 Feb 2010 11:41 am….it just goes to show that you people think you are holier than thou and know everything. Guess what? You have no clue about accounting disclosure requirements. In my comment I mentioned that I purchased a copy of a small network’s accounts from Companies House, it’s not rocket science any idiot knows that. Small companies are exempt from most of the disclosure requirements by the Companies Act, they only have to file abbreviated accounts which are outdated and irrelevant to someone trying to make a career decision. I take it you also never went to business school and your understanding of accounting and business law is through hear say. Charge fees, get more qualifications, more capital e.t.c – doesn’t buy you the accolade of a ‘professional’, you are just a glorified salesman Harry!.

  11. Thanks for that ‘professional’ response.

    I know what you said in your comment. So do tell us what companies house accounts say about these networks and their figures. It would be even more interesting to know who this small network is.

    As for me not having a clue about accounting requirements….must redo my entire degree again!

  12. A warning to Anonymous, if you are considering joining New Leaf Distribution – DON’T! They are an extremely poorly run network where the principal has zero regard for his brokers or their cashflow.

  13. I work as an IFA under a network and have to say the support given by them in these very difficult and demanding days of compliance and RDR, is outstanding. However, I also feel that as a broker, we should be given some protection, in line with the protection the client’s are able to get from the FSA. Why should we be at risk of losing our hard earned commissions because a network gets into financial difficulty? I pay a monthly fee plus also have to give up some of my commissions in return for the compliance support. Like most other people, I have children to support, bills to pay and if my commission was not paid I would be in trouble, plus, the FSA would class me as not worthy to give advice if I fell behind to any of my creditors! Maybe the FSA should look at protecting us too instead of just forcing us to do more and more compulsory exams!

  14. Which networks are financially most strong in the present time? Any comments backed up with some facts might be useful.

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