Australian Finance Group Ltd (ASX: AFG) just posted its biggest quarter ever — so why did the stock fall 2.4%?

Australian Finance Group Ltd (ASX: AFG) has posted a standout start to FY26, recording the highest-ever quarterly mortgage lodgement volumes in its corporate history. The listed mortgage broking aggregator reported AUD 30.6 billion in lodgements during the first quarter of FY26, up 10.5% from the prior quarter and 26.5% higher than the same period last year. Yet despite this headline momentum, AFG shares closed 2.43% lower at AUD 2.41 on October 17, with institutional investors appearing cautious around broader refinancing trends, loan run-off rates, and forward guidance.

This decline comes after a robust one-year share price return of 44.31%, positioning the stock at the higher end of its 52-week trajectory but still within a volatile mid-cap range. Australian Finance Group currently has a trailing PE ratio of 18.98 and offers a fully franked dividend yield of 3.78%, making it an appealing dividend play for retail investors, even as some market participants remain on the sidelines.

The sell-off may have been driven less by performance and more by a need for clarity around future earnings leverage as the mortgage cycle enters a potential period of interest rate cuts. The sentiment highlights a shift toward more forward-looking scrutiny among financials-focused investors, particularly in light of rising mortgage run-offs and tightening competition among lenders.

How is Australian Finance Group building scale and margin through broker network expansion and white-label lending?

Behind AFG’s record Q1 volumes is a deliberate strategy built around three pillars: expanding its broker network, enhancing technology and services, and growing its white-label lending business under AFG Securities. The group now works with more than 4,200 active brokers, representing around one in six across the Australian mortgage broking industry. Residential settlements rose 15% in FY25 to AUD 63 billion, helping push AFG’s total managed loan book past the AUD 210 billion mark.

This scale has supported margin expansion across its lending and distribution channels. Distribution earnings rose 10% to AUD 68 million in FY25, while manufacturing (largely driven by AFG Securities) grew 53% to reach AUD 16 million in earnings. AFG Securities closed FY25 with a loan book of AUD 5.5 billion and a net interest margin of 116 basis points, up from 113 basis points the year prior. Notably, 71% of AFG Home Loans activity in Q1 FY26 was attributed to AFG Securities—a decade-high proportion that reinforces the strength of its proprietary lending pipeline.

The group’s recent Prime RMBS (Residential Mortgage-Backed Securities) transaction, successfully upsized to AUD 1 billion, received strong demand from both domestic and international investors. This affirms AFG’s ability to access cost-efficient capital markets, providing funding diversity for smaller lenders and adding to its strategic advantage in the white-label segment.

What trends in borrower behaviour and lending mix are emerging from the Q1 FY26 mortgage index?

According to AFG’s Q1 FY26 mortgage index, the rebound in investor activity has been one of the most significant demand-side stories of the quarter. Investor loans now account for 36% of all mortgage lodgements, up from 32% a year ago. This rise coincides with persistently tight rental vacancy rates across the country, which hovered at just 1.2% during the same period, prompting property investors to re-enter the market in search of rental yield.

Owner-occupier upgraders continued to make up 42% of mortgage flows, showing no change from the previous quarter but reflecting a three percentage point increase compared to the same quarter last year. First-home buyer activity, on the other hand, held steady at 11%, suggesting that affordability constraints and rising competition from investors are dampening new buyer participation. Refinancing activity declined to just 17% of total lodgements, down sharply from 26% in Q1 FY25, reinforcing the view that the fixed-rate refinancing boom has largely run its course.

The national average loan size increased to a record AUD 698,438, led by New South Wales at AUD 791,562 and Victoria at AUD 680,434. Western Australia saw a notable rise to AUD 621,107, correlating with a 33.5% year-on-year increase in total lodgement volumes. State-level figures suggest that market momentum is being sustained across both eastern and western corridors, with South Australia and the Northern Territory also recording double-digit annual growth.

How are institutional investors reacting to the company’s RMBS growth, distribution margins, and capital efficiency?

Australian Finance Group has been consolidating its standing as a capital-light financial services operator with high operational leverage. The successful AUD 1 billion RMBS placement and a stable share of broker-originated flows signal the company’s growing credibility as a funding intermediary. In FY25, AFG broker flows to non-major lenders stood at 11.6%, with Q1 FY26 figures maintaining a similar ratio at 11.2%, suggesting resilience in its channel partnerships despite the dominance of major banks.

Return on equity for FY25 reached 19%, and the group achieved a 90% cash realisation rate alongside AUD 182 million in investments and liquid assets. These numbers suggest that AFG’s capital deployment strategy remains highly efficient and risk-aware. With annuity-style earnings now representing 73% of total income, investors may begin to price the stock less like a volume-sensitive cyclical and more like a platform-enabled financial services play.

Despite this strength, the short-term dip in the share price may reflect investor caution around rising loan run-off rates as interest rate cuts approach. The company has acknowledged this risk in its AGM remarks, noting that customers are actively seeking opportunities to reduce repayments, a dynamic that could affect net interest margin and asset duration if not managed effectively.

What signals should investors track heading into the December quarter and beyond?

For long-term investors, the core watchpoints in Q2 FY26 and the remainder of the fiscal year revolve around four themes: sustainability of investor loan growth, RMBS issuance cadence, refinancing volumes, and regulatory shifts in mortgage compliance. With the Reserve Bank of Australia expected to maintain or lower rates, investor flows may accelerate, but so too might customer churn in pursuit of better deals.

On the regulatory front, broker compliance and lending transparency continue to be under the microscope. AFG’s BrokerEngine Plus platform, now adopted widely across its network with a Net Promoter Score near 50, has been positioned as a tool to streamline broker operations and reinforce compliance standards. If successfully scaled, the platform could further differentiate AFG in an increasingly tech-intensive financial services environment.

Meanwhile, management has reaffirmed its FY29 aspirations, which include building a AUD 9 billion AFG Securities loan book and sustaining a long-term net interest margin of 120 basis points. These targets underscore the group’s confidence in its growth strategy, particularly as it rolls out additional equity investments through its Broker Investments program—four of which have already been completed.

Is Australian Finance Group emerging as the most resilient mid-cap in the mortgage sector?

Australian Finance Group’s record-breaking Q1 performance offers strong validation of its platform strategy, diversified earnings model, and operational resilience. While refinancing momentum is slowing and run-offs are climbing, the group is offsetting these pressures with investor loan growth, broker channel scale, and capital markets discipline via RMBS execution. It remains one of the few listed mortgage brokers with both origination and manufacturing capabilities, providing rare insight into end-to-end mortgage behaviour.

With a healthy dividend profile, a price-to-earnings multiple in line with peers, and clear technology-led differentiation, AFG may appeal to both income investors and those seeking exposure to Australia’s housing finance rebound. The next quarter will be pivotal in determining whether the company can sustain this momentum amid broader macro easing and competitive lender activity.

What are the most important investor takeaways from AFG’s Q1 FY26 performance and sector positioning?

AFG’s Q1 FY26 highlights several critical themes for investor tracking. The group delivered its highest-ever mortgage lodgement volume at AUD 30.6 billion, reflecting a strong 26.5% year-on-year gain. Investor loans rose to 36% of all lodgements, while refinancing activity dropped to 17%, down from 26% a year ago. Proprietary lending momentum continued with AFG Securities accounting for 71% of in-house mortgage flows. State-level growth was led by New South Wales and Western Australia, while national average loan sizes hit AUD 698,438. RMBS execution remains strong, with a AUD 1 billion upsized transaction completed. Shareholders also benefited from improved capital efficiency, as evidenced by a 19% return on equity and high cash realisation. Yet the 2.43% stock dip post-announcement underscores lingering investor caution around potential run-off pressure and broader interest rate dynamics.

What are the most important highlights and investor insights from AFG’s Q1 FY26 results?

• Australian Finance Group Ltd (ASX: AFG) posted record mortgage lodgement volumes of AUD 30.6 billion in Q1 FY26, up 10.5% quarter-on-quarter and 26.5% year-on-year.

• Investor loans surged to 36% of total lodgements, reflecting renewed demand amid low rental vacancy rates (1.2%).

• Refinancing volumes dropped to 17%, down from 26% a year ago, signaling the tapering of the fixed-rate expiry wave.

• AFG Securities represented 71% of in-house lodgement flows, the highest share in 10 years.

• The group successfully completed an upsized AUD 1 billion Prime RMBS issuance, with strong institutional demand.

• National average loan size hit a new high of AUD 698,438, led by NSW at AUD 791,562 and WA at AUD 621,107.

• FY25 results showed NPAT growth of 21% to AUD 35 million, and underlying return on equity at 19%.

• Broker network expanded to over 4,200 active brokers, supporting a total loan book in excess of AUD 210 billion.

• Despite the performance, AFG’s share price dipped 2.43% on October 17 to AUD 2.41, reflecting investor caution around loan run-offs and refinancing softness.

• AFG reaffirmed its FY29 targets of a AUD 9 billion AFG Securities loan book and a 120 bps net interest margin.