Mortgage market "completely shut down" - but expect a boom

by Ksenia Stepanova15 Apr 2020

Cashflow, business retention and short-term planning has become critical for all adviser businesses over the past month, with most advisers focusing hard on how to survive the next twelve to eighteen months.

Different businesses have put various measures into effect to manage their cashflow, and are encouraging others to “stockpile” cashflow as much as possible for potentially very difficult months ahead. However, the outlook is not all dark. Some industry players expect to see a significant upturn once the downturn has run its course, with a potentially large backlog of sidelined deals coming back into play, and experts say that maintaining existing relationships is vital if advisers want to emerge successfully on the other side.

John Bolton, Financial Advice New Zealand member and founder of mortgage and insurance brokerage Squirrel says that for his business, cashflow has undoubtedly been the biggest and most immediate concern.

“We have a salary-based business model which, when settlement volumes drop off, means you need to adjust fast,” Bolton explained.

“We’ve already consulted with our wider business, and we’ve agreed to move to 80% of our salaries. We did that very quickly, because salaries are about 70% of our cost base.”

“We do an extensive cashflow forecasting, generally for five years, which is pretty far ahead. But of course, most of us are now focusing on the next twelve months,” he said.

“It’s going to be very important to keep your powder dry, and to stockpile as much cashflow as you can through this spring.”

Bolton says that mortgage advisers will be facing particularly tough times as the market has completely shut down, and making transactions is impossible. He says he expects a good month in May due to a potential ‘stockpiling’ of housing transactions - however, beyond that, he says the market will likely remain quiet for some time.

“June and July will be very quiet - not only is it the middle of winter, but because of the lockdown, there will be very little sales activity occurring,” he explained.

“Once that ends, there will be people amping to get back into the market - but they’ll be a minority. The majority will be  sitting on the fence for a while.”

On the business side, Bolton says that Squirrel has also been focusing heavily on staff retention and is aiming to hold onto 100% of its staff, as it may be hard to recruit good advisers on the other side of this crisis. However, he says he expects a significant bounce back of business once the crisis has died down and the economy has had a chance to recover.

“On the other side of this, I’m positive that we’ll go into a significant economic boom - probably not for the next couple of years, as the next eighteen months to two years will be pretty tough,” Bolton said.

“But beyond that, I think there will be some pretty big opportunities for us.”

“I’m expecting the market to be very much focused on advice - transactional broking will disappear,” he added.

“Pricing will become a lot more commoditised - you might be able to negotiate and differentiate on price a lot more. Banks will also step away from advice and leave a decent sized part of the market to us, and I see that as an opportunity.”

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