For the mortgage broking fraternity, like most industries, 2020 continues to present a litany of challenges that colour the future with a particular shade of uncertainty that appeals to only the most hardened opportunists.
If we get down to it, how are the smartest and most adaptable mortgage brokerages adjusting to the myriad challenges being presented? And where are the opportunities to turn these challenges into upside and create additional value in your business?
Navigating the valley of death
One thing we have learnt from businesses who have teetered on the precipice and successfully navigated through the valley of death and out the other side, is they often emerged far stronger – and done so by embracing change not just once, but again and again. Think Lego, Apple, Disney and Amazon. Each has used setbacks as catalysts for innovation, reinvention and disruption.
Mortgage brokers have also had to overcome their share of market shifting adversity over the last decade – be it threats to trail, regulation cuts, a Royal Commission and an ever-heavier compliance and educational burden. So those that are still standing have already had their resolve tested and proven their resilience. COVID-fuelled recession is just another round of fire, albeit an unprecedentedly heavy one.
Where is the value?
So far, we have not seen any notable negative impact on the value of trail book and mortgage brokerages from the current COVID-19 market maelstrom. But there has been a clear split in the pack with an increase in brokers leaving the industry. As a result, we’ve seen an uptick in stronger brokers approaching us for larger loans to fund book purchases as they sniff out opportunities.
We have identified seven drivers of trail book value and what you need to look at when buying a book or preparing your own business for sale at the optimal value:
1. Seasoning. This is the length of time individual loans have been on the book. The longer they’ve been in your book, the higher the value.
2. Underlying run off. This looks at how quickly the book is losing loans. Focus on embedding those relationships.
3. Arrears and clawbacks. Frequency with which clients slip into arrears or loans are clawed back. A potential challenge in the current market.
4. Growth in underlying loans. Growth in the number and value of those loans. Hold tight to the loans you do have.
5. Growth in trail. A growing trail book is a valuable asset, particularly in a time of uncertainty. Tap into gaps in the market.
6. Not all loans are equally valuable. A properly structured investment loan, for example, could be a more valuable asset than a residential loan. Write loans where you haven’t previously.
7. Underlying spread of lenders, borrowers and products. Focus on the mix and diversity. Concentration risk is a negative.
And a dollop of better, smarter, faster will not go astray
Innovation is not necessarily about scrum masters and setting the world on fire. It can be as simple as getting the basics right. If you look hard enough, there are quick wins out there both from a resilience and value-building perspective. Check out our five tips to help prepare your business for what comes after COVID-19.
Take two minutes to get a sense of your trail book value
Check out our free trail book valuation calculator to get a sense of the value range for your trail book today.
You can also download our valuations flyer for further information.