Mortgage Advice Bureau Regulatory News (MAB1)

1 December 2022

Mortgage Advice Bureau (Holdings) plc 

("MAB" or the "Group")

Trading Update 

Mortgage Advice Bureau (Holdings) plc (AIM: MAB1) today issues a trading update following the publication of the Autumn Statement on 17 November 2022 ("Autumn Statement").

Following announcement of the Group's strong interim results for the six months ended 30 June 2022 and a large gain in MAB's market share, the mini-budget on 23 September 2022 created a significantly heightened level of uncertainty which had a direct negative impact on the mortgage market, including an immediate rise in mortgage interest rates, the withdrawal of many mortgage products by lenders, a rapid tightening in underwriting and reducing availability of credit. As a result, house purchase activity was significantly reduced and re-financing was also impacted. This situation persisted as borrowers and lenders awaited some level of reassurance and clarity from the Autumn Statement. 

These extreme market and lending conditions severely impacted activity levels across all of the Group's product lines, with written business in October and November circa 50% below expected levels. The reduction in mortgage activity and new house sales is expected to persist until early 2023, after which activity levels are expected to start to slowly build.

Adviser recruitment in Q4 has also been affected, with the majority of our AR firms deciding not to onboard new advisers as planned, having paused growth plans until the outlook becomes clearer. The number of underperforming leavers has continued at a normal level, and in most cases these advisers will not be replaced until mortgage volumes pick up significantly from the exceptionally low levels at present.

In recent weeks we have seen early signs of our highly congested pipelines of written new business completing, due to lower new business levels, and we expect this trend to continue. Buyers with mortgages reserved prior to the mini budget are strongly motivated to complete their purchase at the lower mortgage rates they have secured. Where mortgage offers expire, typically after six months, there is a risk of some transactions aborting if they are not renegotiated. Pipelines are still holding together reasonably well, but we do now expect slightly higher fallout rates than usual.

In addition, we are disappointed that Boomin has recently been put into liquidation, having not been able to secure new investors in this challenging economic climate, which leads to a £2.8m non-cash write off for our investment.

Outlook

The Group's financial result for the year ending 31 December 2022 will be impacted by the adverse market conditions, and we now expect the Group's adjusted profit before tax for the year ending 31 December 2022 to be slightly below market expectations. However, we have successfully continued to grow our market share to 7.0% for the nine months to 30 September 2022 (2021: 6.1%).

Although purchase transactions will be markedly lower next year, overall we expect a second-half weighted recovery from the current exceptionally low activity levels as consumers adapt to a challenging but more stable macroeconomic and interest rate outlook. MAB's re-financing opportunities from its client bank are at a record level for 2023. In the wider market, 1.8 million borrowers will see their current mortgage deals expire in 2023, providing further opportunity for MAB. It is widely anticipated that product transfers will represent a higher proportion of re-financing transactions than in prior years. Accordingly, we will ensure our resources are re-deployed where our advisers and customers need them most, with lead generation being a major area of focus.

We expect the Group's adjusted profit before tax for the year ending 31 December 2023 to be considerably impacted, as well as H2 weighted, and may see no improvement on 2022. This reduced expectation for 2023 is directly due to the extreme market conditions following the September mini-budget, which have also led to a reduction in expected adviser numbers at the year end. Lower housing market activity than originally anticipated, combined with potentially flat overall adviser numbers (with a fall in existing adviser numbers expected in H1 2023) and tighter levels of underwriting criteria introduced by lenders, will also be contributing factors.

Lower lead levels in a challenging housing market always results in a tightening of adviser numbers and an increased focus on maximising opportunities and productivity. However, we do believe H2 2023 will see organic adviser numbers stabilise and start to build again as market conditions ease further and new lead sources and initiatives start to impact on business volumes. We also expect a strong year ahead for the recruitment of new AR firms due to the more cautious market outlook encouraging broker firms to seek a partner that can help them optimise income and support continued business growth.

Despite the more challenging housing and mortgage market outlook for 2023, MAB's long term fundamentals remain very strong. Fluent's successful integration into the Group positions it well to service increased lead numbers from new lead sources that will be onboarded throughout 2023.

We will continue to take a rigorous and proactive approach to the management of costs, while progressing with the planned investment in our proposition and resulting market share growth to ensure the strongest possible recovery in 2024 and beyond. MAB remains highly cash generative and retains a strong balance sheet to take advantage where there are opportunities for the outlook for 2023 to improve.

Peter Brodnicki, CEO of MAB, commented:

"The consequences of the so-called mini-budget have been quick and far-reaching. Overnight our market moved from being fairly stable and reasonably confident, to almost the polar opposite. The sudden and unexpected pace of mortgage rate increases, combined with the tightening of mortgage lending criteria, have resulted in some customers pausing both home-moving and re-financing plans.

The recent Autumn Statement and the various Government changes prior to that have helped to stabilise markets. Although macro uncertainty remains for many reasons, we expect mortgage rates to continue to stabilise, allowing some customers to re-enter the home-moving market and also re-finance at more competitive mortgage rates than those seen in recent months.

Despite the various market and political challenges, MAB remains very well positioned to grow its market share strongly through 2023. In more challenging housing markets although we may see a reduction in organic advisers our new AR recruitment performs strongly, so next year overall adviser numbers could remain flat.

The re-financing opportunities in 2023 are significant, and with the technology enhancements we have delivered, MAB is in a better position than ever to optimise those opportunities. As expected, protection attachment rates have already started to improve in the current environment, and our focus to ensure that continues has never been greater. As we see in housing downturns, transactions are delayed, they are not lost."

Enquiries:

Mortgage Advice Bureau (Holdings) plc +44 (0)1332 525007

Peter Brodnicki, Chief Executive Officer

Ben Thompson, Deputy Chief Executive Officer

Lucy Tilley, Chief Financial Officer

Numis Securities Limited

Stephen Westgate / Giles Rolls

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 as it forms part of UK Domestic Law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR").