The sharks of mortgage broking: How to eat and avoid being eaten.
It’s likely that you’ve heard the saying “there are two certainties in life: death and taxes”. While this holds true for the vast majority, there’s a third certainty for those in the mortgage broking industry, that being change.
Over the last few years, change has come in many forms to the mortgage broking industry, including regulatory developments, vertical integration and technological advancements that have changed how brokers do business.
However, the most prevalent driver of change? Acquisition.
Acquisition, among banks, aggregators, and brokers, has simultaneously been a cause of change, as well as the tried-and-proven approach to navigating it.
How have brokers harnessed acquisition as a survival method?
As the mortgage broking industry has evolved, banks have re-structured their models to ensure that the administrative costs associated with loan processing are increasingly internalised by the broker. Naturally, as fixed costs have grown, the net trail income received by brokers has been reduced.
The answer for many? The pursuit of ‘economies of scale’ via trail book acquisition.
Purchasing the right trail book at the right price can be the answer to increasing trail income whilst only marginally adding to fixed costs – however, how do you go about this?
Step one, finding a book
As a company that manages trail-book marketplaces for various aggregators within the industry, we can confidently tell you that it is a seller’s market. On average, there are 5-7 buyers for every one trail book being sold.
However, that’s not to deter those interested in buying. There’s a wealth of acquisition opportunities available to those who look for it by attending PD days to socialise with exiting brokers, building relationships with BDMs that have a wide reach, and partnering with third-party trail book marketplaces.
Step two, enticing the seller in a sea of sharks
Over the many years that we have bought, sold, valued, and lent against literally thousands of trail books, we have witnessed average trail book multiples rise from averages of 1.5 x net annualised trail to 2 x; then 2.2 x and they keep climbing…
Given the undeniable level of competition, we suggest a couple of tactics when you have found a book worth purchasing:
1. Offering a quick settlement – we have found that the market does not always favour the highest bidder, but rather the buyer that is willing to close the sale quickly with a minimum of conditions. So, in some cases, offering a deposit ahead of the legal process while bidding can go a long way.
2. Be mindful of the seller’s “identity attachment” to broking – we find that a lot of sellers get ‘cold feet’ ahead of a sale due to their fear of losing the professional identity that comes with a long career in mortgage broking. To counter this and stand out among bidders, we suggest initiating an open discussion about the seller’s involvement following the sale. A low-involvement loan writing arrangement with the vendor could be the hook you need to seal the deal.
Let us help
If you would like to find out about how we can help your business grow with our unique loan solutions for brokers, financial planners, accountants or rent roll business owners please contact us on 1300 139 003 or at firstname.lastname@example.org