Mortgage Choice needs to get costs under control

Broker franchise group Mortgage Choice has produced a disappointing performance in the year to June, with earnings and market share falling and a loss in its Help Me Choose comparison website business.

The company reported a net profit of A$18.9 million for the 12 months to June - down five per cent on the previous corresponding period. On a cash basis (after adjusting for the accounting treatment of trail commission income) profit was down seven per cent to $18.6 million.

After making a further adjustment for discontinued operations (Mortgage Choice sold its Loan Kit aggregator business last year), cash profit was down one per cent.

The value of the loan book grew by 4.6 per cent to $49.5 billion but market share fell from 3.4 per cent in 2013/14 to 3.31 per cent in the year to June.

Approvals were up 10.5 per cent to $13.4 billion but again share was down.

Mortgage Choice chief executive John Flavell, who started in April, said expenses had been growing in line with revenue for some time and this needed to be addressed.

"We need to control the growth in our expenses," Flavell said.

He has put investment in a new broker front end system on hold.

The company has recently replaced its customer relationship management system. Flavell said he would work on getting efficiency gains from the new CRM system before investing in new broker tools.

He is also keen to help the company's fledgling financial planning business by generating more leads from established mortgage broking customers.

Mortgage Choice has 422 mortgage broker franchises (up from 405 a year ago) and 34 financial planning franchises (up from 28 a year ago).

In the financial planning business funds under administration grew by 165 per cent in the year to June and in-force insurance premiums grew by 91.3 per cent. However, the numbers are small: $278 million of FUA and $15 million of in-force premium.

Flavell said one of his goals for the current financial year was to achieve greater integration of the financial planning business and increase the number of home loan customers referred to planners.

Help Me Choose went from a cash profit of $203,000 in 2013/14 to a loss of $763,000 in the year to June. Flavell said he had added resources to the business to make sure it was able to capitalise on its opportunities.

Flavell said he was not concerned about the possibility of a slowdown in the mortgage market as a result of the Australian Prudential Regulation Authority's recent measures to limit investor lending, interest-only lending and other high-risk mortgage activity.

He said the changes to pricing and terms of loans in recent months had added complexity to the market and would probably encourage more people to seek advice before borrowing.

"We think there will be system growth, although the composition may change," he said.

Mortgage Choice's average upfront commission rate rose from 0.63 per cent to 0.64 per cent during the year to June, while the average trail commission was down from 0.19 per cent to 0.17 per cent.