Who are we and what do we do?
Mortgage Advice Bureau is one of the UK’s leading consumer intermediary brands and specialist appointed representative networks for mortgage intermediaries. We have over 150 mortgage intermediary firms known as “Appointed Representatives (“ARs”)” within our network and over 1,100 Advisers operate within these ARs. MAB provides its ARs with mortgage and insurance panels, as well as support and services including technology, compliance, training and marketing, which enables our partner firms to focus on what they do best; delivering expert advice to their customers on mortgage, protection and general insurance products. Our model allows customers to choose how and when they want to research, receive advice and transact. Technology is at the heart of both face to face and telephone advice, helping provide greater speed, ease, and convenience, and by doing so delivering an increasingly more compelling customer proposition.
The majority of our ARs trade under the recognised and respected Mortgage Advice Bureau brand through a franchise style model operated by the Group. MAB branded mortgage shops (currently c. 30) also form part of this model. Mortgage Advice Bureau is particularly active in the estate agency and new build sectors both of which are major lead sources for our partner firms. MAB is the only mortgage intermediary brand with UK wide adviser coverage for face to face advice, alongside a rapidly increasing capacity for telephone advice. This USP is being leveraged to secure major regional and national lead sources that will be serviced by MAB branded distribution. This is a new initiative supported by developments in technology, that is already gaining momentum, and adding further value to our key branded business partners as well as those considering joining MAB.
MAB has long term contractual strategic partnerships with its ARs, and our proposition is designed to attract high quality medium to larger sized firms, that are forward thinking and want to grow their business and market share. Once an AR joins MAB, we work closely with them to help them grow and achieve their ambitions.
The Group maintains all regulatory FCA permissions
The Group’s network offers advice on over 17,000 mortgage products from over 80 lenders, including residential and buy-to-let mortgages. The Legal & General Mortgage Club, one of the largest and most successful UK mortgage panels, is highly respected by lenders and has been adopted by the Group as its mortgage panel of choice, although MAB can access all UK lenders.
We operate a revenue share model with our ARs and therefore our interests are aligned with those of our ARs. Our revenue consists predominantly of procuration fees from lenders on the arrangement of a mortgage, insurance commissions from our panel of insurers on protection or general insurance policies being arranged for our customers, and also client fees which are paid by the majority of underlying customers for the advice that they receive. The proportion of revenue falling into each category for the last two financial years is as follows:
MAB’s recognised revenue consists mainly of mortgage procuration fees, insurance commission and client fees, and this is all received by MAB. We then pay our ARs their share of revenue on a weekly basis, and then they pay the advisers they employ. As a result, we have a cash generative and capital light business model, which enables us to pay out 90% of our profits after tax as dividends. MAB has a risk mitigated, scalable model and carries no debt.
Our KPIs are set out below for the last four financial years, demonstrating the strong consistent growth that MAB has delivered, with a revenue and EPS CAGR of 24% and 23% respectively for the three full financial years since its IPO in November 2014.
Technology is central and integral to our business model, it is developed in-house, and directly benefits MAB advisers and customers. We are investing in a number of transformational technology developments, and are excited about the impact that this could bring to MAB in the shape of increased productivity and efficiency of existing advisers, as well as our ability to attract new advisers and lead sources due to the stand-out benefits our technology will be delivering.
In our industry as a whole technological transformation has been slow and there has been no major process change in the mortgage and home-moving process. In no small part this is due to the importance, complexity and sheer enormity of buying a home. However, the industry will inevitably see meaningful change in the medium term and MAB intends to continue to be right at the forefront of any innovation, leading as opposed to following. Put simply, we want MAB advisers to have the best and most straightforward technology tools to enable them to procure and help more customers, offer a wider range of products and services, and, most importantly, we want to use technology to design innovative new processes and provide an overall experience for customers that is second to none. A key part of this is delivering digital tools that can be used to support a customer’s research process and help them to apply for a mortgage.
We remain advocates of the importance of customers receiving full advice and this will continue to be our primary and most important focus. However, we will explore how some customers can get the mortgage they want through more expedient means, as they increasingly seek to research in a more remote and digital way.
MAB has made (and continues to develop) several key strategic investments, funded through its cashflow to date, and will continue to consider new opportunities that arise, as and when they are deemed to clearly support, enhance and accelerate our agenda of increasing our market share and profitability. Whilst our investments to date have been relatively modest in size, we also consider and appraise larger investments to help accelerate the development of our customer and adviser proposition, lead generation, and distribution.
We have started testing overseas markets through our joint venture in Australia to ascertain the feasibility of scaled cross border expansion. The signs are encouraging against a market backdrop that in many ways is similar to that of how the UK mortgage market was over a decade ago. Our technology developments will allow us to enter new markets far more easily, and accelerate growth in those markets.
MAB is also exploring home-moving as a process in its entirety, from start to finish. Currently MAB is involved in mortgages, protection, household insurance, surveys and conveyancing. In the medium term, we intend to expand our involvement beyond the mortgage transaction, through vertical integration with the ultimate aim of using technology to assist in the whole home moving process for a customer and increasing the footprint of our ancillary services that are capable of being provided digitally to ease that process and add further customer value. Longer term, our goal is to help and guide our customers in their property journey throughout their lives, which include pre-purchase, rental, and later life lending. This will increase our target market considerably, as well as widen the range of products and services delivered by MAB face to face, over the phone, or for more simplistic offerings, on a self-serve basis for those who are comfortable transacting in this way.
In summary, our strategy remains focused on securing further growth through technology, lead generation and specialisation which will increase our market share and the number of mortgage completions in all market conditions, enabling us to continue to deliver strong returns to our investors.
UK Housing market
UK Housing transactions have been relatively flat over the last few years as summarised in the chart below:
In the first six months of 2018 however, housing transactions fell by 5%. Overall house moves are low versus historical averages and they remain in a flat, yet relatively stable, environment, with the current house purchase market remaining predominantly comprised of those moving home due to non-discretionary lifestyle factors, first time buyers and serious investors. There are multiple factors that contribute to this, including constrained affordability, increased levels of stamp duty for some, lack of available property to move to and, of course, an overall air of uncertainty driven by the Brexit agenda.
With regards to house prices, the picture is somewhat regional or even local, with house prices falling most notably in London, South East and East Anglia whilst the South West, East Midlands and North East are broadly flat. Rises have been recently seen in Northern Ireland, Scotland, West Midlands, Wales, Yorkshire & Humber and the North West (UK Residential Market Survey by the Royal Institute of Chartered Surveyors, November 2018).
However, we expect this prolonged period of lower housing transactions to contribute to the pent-up demand that at some point will need to be released, perhaps when consumer confidence returns, and the post-Brexit landscape becomes clearer.
UK mortgage intermediary market
The current and new/future lending in the UK mortgage market and the intermediary share of that market is summarised below:
New mortgage lending (comprising purchase and remortgages) has been relatively stable over the last few years, representing around £250-270bn of lending. Remortgages are where a customer moves their mortgage to a new lender after the end of a fixed term with a different lender. By contrast, a product transfer is when a customer stays with the same lender after the end of their fixed term and moves on to another product with that same lender.
Historically, lenders offered their customers Product Transfers directly, with intermediaries having very little input into the Product Transfer market. Recently, however, many lenders have recognised the value intermediaries can bring to a customer decision and have now engaged intermediaries to help them to retain their customers through the active facilitation of Product Transfers. MAB estimates that the intermediary market share of Product Transfers is already in excess of 30%. This development presents incremental customer interaction and new opportunities for MAB advisers, especially as MAB has traditionally been predominantly a house purchase focused model. We expect activity in this area to remain strong, and MAB is well positioned to capitalise on this development and grow its market share.
Buy to Let in many parts of the UK no longer looks to be as attractive an investment option as it was earlier this decade. In addition, for a proportion of home-owners it is easier or more appealing to improve and extend their existing homes rather than move, contributing to housing stock levels remaining at historical lows.
Mortgage rates remain at near record lows, meaning that although housing has become more expensive, servicing mortgage debt is cheap compared to previous decades. The low cost of borrowing, in conjunction with incentives for First Time Buyers such as the Help to Buy Scheme and lenders offering a wider range of products to First Time Buyers, mean that the mortgage market should continue broadly at its current run rate, regardless of the impact of the factors above.
Although interest rates are low, we have seen them rise from their lowest level. This change has been the catalyst for a higher level of re-mortgaging, with both residential and buy to let re-mortgaging showing mid-teen percentage increases on H1 2017, as well as the emergence of more Product Transfers as customers lock in to new deals.
Additionally, a new market segment that is emerging and will be highly intermediated is lending into retirement, or, so-called ‘Later Life Lending’ as lenders introduce a far wider range of products for customers over 60 years of age. The most specialist part of this market, namely “Equity Release” where no repayments of capital or interest are made, although growing, will remain quite small in the overall context of the anticipated growth in Later Life Lending. Some lenders have already expanded their mortgage portfolios to also include products that help customers to borrow money at older ages, and, also to borrow that money until they are much older. This relaxation or innovation is in response to demand from an ageing population, and those that want to provide intergenerational assistance to help family members to fund university or a first home for example.
It is estimated that Later Life Lending will represent c.£80bn of additional outstanding mortgage lending by 2027. It is also estimated that the housing wealth of the ‘over-55s’ is worth £2.5 trillion. Again, the anticipated growth in this market presents MAB with incremental opportunities, as a direct result of a new and growing market segment which will be highly intermediated (c. 95%).
UK Protection Market
It was estimated by Swiss Re in May 2017 that the protection gap in the UK was £2.5 trillion. This represents a considerable opportunity for MAB as our advisers are not only focussed on getting customers into their new homes, but also keeping them there if an unexpected event occurs in their lives.
In terms of the national housing outlook, our current view is that it looks overall like more of the same, i.e. both flat but also steady in terms of transactions and much the same if not marginally upwards in terms of prices, again with regional and local variations. Housing stock for sale is also set to remain at or close to record lows. UK Finance has not updated its forecasts recently, but predicts a relatively flat market for gross new mortgage lending (which excludes Product Transfers) for 2018 as a whole, with a 4% increase for 2019 as the Government continues to manage the UK’s exit from the EU. Intermediary market share has increased slightly to 74% for H1 2018. MAB and its ARs’ growth is not directly reliant on increasing housing transactions, property prices, or intermediary market share as our continued year on year growth demonstrates.
Mortgage Advice Bureau is headquartered in Derby and was co-founded by the CEO, Peter Brodnicki, in 2000 to provide a specialist network solution to intermediaries working with UK independent estate agents.
Since 2009, MAB has expanded into other sectors of the mortgage market and built high quality distribution and new income streams through a number of strategic investments and joint ventures, as well as its acquisition of Mortgage Talk in March 2012. MAB floated on the AIM market in November 2014.
The Company has built an extremely strong, loyal, and well-established senior team and the Group successfully endured one of the deepest and protracted recessions in the UK on record, remaining profitable throughout, and constantly growing market share.