Australian Finance Group lifted first-half profit 46 per cent as broker-originated lending set records and its own lending book grew almost a quarter. Yet the shares have nearly halved from their 52-week high, caught between a rising cash rate, a reworked negative gearing regime and doubts about the durability of the Volume surge.

In the December 2025 quarter, Brokers using Australian Finance Group Limited (ASX: AFG) lodged $31.6 billion of home Loan applications, the biggest three months in the aggregator’s history. Six weeks later AFG reported a record half-year profit. Six months after that, its shares were near a 52-week low. That gap is the most interesting thing about the stock right now.

A record half the market has refused to pay for

AFG sits at the centre of Australia’s Mortgage distribution chain. It aggregates roughly 4,300 brokers, clipping the commissions banks pay to write loans; it manufactures its own product through AFG Home Loans and AFG Securities, a non-bank lender funded by warehouses and residential mortgage-backed securities (RMBS); it owns asset finance aggregator Fintelligence; and it holds 32 per cent of commercial lender Thinktank.

The structural story has been kind. The Mortgage & Finance Association of Australia, using Cotality data, put the broker channel’s share of new residential home loans at a record 81.0 per cent in the March 2026 quarter, up from 76.8 per cent a year earlier and 55.3 per cent in 2018. AFG says roughly one in nine home loans nationally is now written through its network, up from about one in ten. When brokers take share from bank branches, aggregators collect the toll.

Investors have looked past it. 58 on 31 Trailing dividends of 10.0 cents fully franked imply a Yield around 6.3 per cent.

Rate rises and a budget rewrite change the setting

The reason for the de-rating is not hard to find. After cutting the cash rate three times in 2025 to 3.60 per cent, the Reserve Bank reversed course, lifting rates in February, March and May 2026 to 4.35 per cent before holding in June. Commonwealth Bank’s economists expect no cuts until 2027.

Then came the Federal Budget on 12 May 2026, which wound back negative gearing on established residential property. AFG’s quarterly index shows the effect. June quarter lodgements of $28.1 billion were still a June-quarter record, but growth slowed to 1.4 per cent year-on-year after a 22.7 per cent jump in the March quarter. Investors slipped to 34 per cent of lodgements from 35 per cent, and the three eastern states all went backwards while Western Australia rose 14.6 per cent. Chief executive David Bailey called the easing “transitional”, adding that “broker Demand has remained resilient”.

The numbers behind the momentum

For the half year to 31 December 2025, AFG reported net profit after tax of $22.4 million, up 46 per cent, on underlying Gross Profit of $78.8 million (up 16 per cent). Underlying Profit after tax and Amortisation rose 43 per cent to about $24 million, with Return on Equity of 21 per cent. Residential settlements of $38.0 billion were 19 per cent higher, lifting the total loan book to $240.3 billion.

The more consequential shift is in Manufacturing . AFG Securities’ book grew 24 per cent to $6.3 billion, and net interest Margin — the spread between what it earns on loans and pays for funding — widened 11 basis points to 124bps, exiting the half at 126bps. A bigger book at a wider spread is what drove profit growth well ahead of Revenue growth. Funding held up: $1.0 billion of RMBS was issued in the half and $1.2 billion more in February 2026, three warehouses were renewed at improved margins, and 53 per cent of the book is term funded. Arrears beyond 30 days sat at 1.7 per cent.

The trajectory continued after balance date: the securities book reached $7.1 billion by 30 June 2026, 30 per cent higher year-on-year. Asset finance settlements through Fintelligence — wholly owned since November 2024, when AFG bought the residual 16.7 per cent for $11.4 million — grew 20 per cent to $2.1 billion. Directors declared a 4.7 cent fully franked interim Dividend and flagged a 50–70 per cent Payout Ratio for FY26, following FY25 profit of $35.0 million (up 21 per cent) and dividends of 9.1 cents.

The case for patience

Management targets a $9 billion AFG Securities book by FY29 at a margin near 120bps, which would sharply lift the Earnings weight of its highest-margin division. Aggregation itself has real Operating Leverage : residential lodgements per broker rose 22 per cent to $19 million in the half, gross profit per broker rose 15 per cent to about $42,000, and recurring subscription income grew 11 per cent to $11.2 million. Higher rates are not uniformly bad, either — they slow refinancing, which reduces run-off from AFG’s own book. Refinancing fell to 15 per cent of March quarter lodgements, the lowest AFG has recorded.

The case for caution

Volume is cyclical and AFG’s earnings are geared to it. A cash rate held at 4.35 per cent, softer investor demand and a record average loan size of $727,345 against stretched affordability all argue for slower growth in FY27. Non-bank lending is fiercely competitive, and margin gains may not persist. Recruitment is a contest: an independent survey for the June 2026 quarter had AFG adding 121 representatives, third by absolute appointments behind Loan Market Group and Specialist Finance Group, in a top-ten cohort that shrank overall. ASIC told the industry in February 2026 it had begun its first monitoring exercise of brokers’ best interests duty obligations, drawing data from aggregators — a compliance cost, and a reminder that commission Economics remain politically exposed.

Signposts before the August result

The FY26 result, due 20 August 2026, is the near-term test: whether second-half margin held near the 126bps exit rate, whether the final dividend lands inside the 50–70 per cent payout band, and what management says about FY27 volumes. The September quarter index will show whether the investor slowdown is transitional or structural, and arrears Warrant attention if Unemployment drifts higher.

AFG has delivered on the metrics it controls: more brokers, more settlements, a bigger and better-priced lending book. What it cannot control is the rate cycle and the tax settings that shape borrower behaviour — and on current pricing, the market assumes both work against it.