AFG thrives on broker growth

Australian Finance Group is hardly a household name, so it may surprise some readers to learn it is one of the top players in the home loans market.

Since being established eight years ago, AFG has become Australia’s largest mortgage finance wholesaler.

Managing director Brett McKeon said the group processed nearly 6,000 mortgage applications worth $1.4 billion last month.

It processed the loans on behalf of about 1,000 mortgage brokers, who use AFG’s IT systems, administrative support, training and research.

As well as dedicate mortgage brokers, Mr McKeon said AFG has also partnered with accountants, law firms, real estate agents and financial planners.

AFG’s business model is distinct from its main competitors, such as Mortgage Choice and Aussie Home Loans, which combine the back-end service function with a retail brand.

Mr McKeon, who is one of five owner-directors working in the business, said there are no plans for changing a winning formula.

"We don’t want to be a retail brand," he said.

"The retail space is very cluttered. We would be divorcing from everything that has been successful if we did that."

The value of mortgage finance that AFG has under management recently passed $11 billion, providing the group with a recurring revenue stream.

The future prospects of AFG and other leading mortgage brokers were given a glowing appraisal in a recent research report by investment bank Goldman Sachs.

"Brokers currently originate approximately 30 per cent of all new home loans," the report said.

"We expect this proportion to grow to 45-50 per cent over the next two to three years, which is slightly higher than the banks’ own expectations."

The brokers have an unusually high market share in Western Australia, where they account for about 45 per cent of home loans.

Goldman Sachs said the three largest broking groups command at least 40-50 per cent of the broker market, and it expects the level of concentration to increase.

Its report noted that: "AFG differs from some of its major competitors in that it aims to control the customer relationship beyond the initial origination of the mortgage".

Mr McKeon confirmed that AFG was widening its product offering to include insurance, financial planning and property investment.

To support this focus, AFG has invested $6 million in customer relationship management (CRM) software.

AFG also offers commercial loans, although the volumes (about $60 million per month) are very low compared to housing loans.

Mr McKeon sees this as another growth area over the next couple of years.

AFG’s growth plans have been helped by its relationship with Macquarie Bank, which paid a reported $10 million in 2001 for a 10 per cent shareholding.

As well as the funding boost, Mr McKeon said AFG had benefited from Macquarie’s expertise in areas like IT and legal.