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The aggregator has flagged that industry changes are expected to lead to increased mergers and acquisitions among broker groups and aggregators.
During an investor briefing on Tuesday, 5 December, AFG highlighted that the $532 billion residential loan market had increased by 7 per cent (compound annual growth rate from FY21)*.
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Currently, brokers are responsible for just under 72 per cent of Australia's residential mortgages, a figure partially attributed to the ongoing trend of bank branch closures.
AFG anticipates this trend will persist and serve as a catalyst for future growth in the industry.
“We expect broker growth to continue and exceed 80 per cent of the market – providing guidance, delivering competition, and choice,” chief executive David Bailey said.
In addition to residential growth, the aggregator noted commercial and asset financing has seen growth.
Commercial and asset finance have increased by 11 per cent over the year to reach $255 billion, with brokers’ market share ranging between 20 and 30 per cent.
AFG anticipates a “period of broker consolidation” as the broker market is fragmented, with an ageing demographic.
“AFG’s industry share of large broker businesses (24 per cent) positions us to take advantage of consolidation,” Mr Bailey said.
“Broking has now been a growing channel in the market for nearly 30 years and as a consequence it is understandable that as the industry matures, there will be some who will be looking to pass the baton onto newer entrants in the marketplace as they contemplate their own exit strategy.
“Newer entrants are looking at ways to assist this transition by buying into existing businesses or joining entities with a successful business structure.”
Furthermore, increasing fixed costs such as regulatory compliance, technology, and insurance are enabling broker organisations to grow larger.
“Broker consolidation is inevitable, with ageing broker demographics and increasing industry complexity, as well as a growing investment need in digital to meet evolving customer expectations,” Mr Bailey said.
Indeed, it followed the latest trend of consolidation in the brokerage space.
In November of this year, Court Financial Services and financial services provider UFinancial announced their merger, following Smartmove Professional Mortgage Advisors’ announcement in August that it would become a part of Viridian Financial Group Limited, forming a “strategic integration.”
On the back of rising interest rates and softening mortgage growth, the aggregator has also been seeking to broaden its diversification offering.
Digital strategy
AFG also noted its progress in executing its digital strategy.
Indeed, the aggregator revealed in its financial year 2023 results that it has advanced its diversification strategy, particularly through investments in BrokerEngine, Fintelligence, and Thinktank.
The group integrated the Broker Engine platform to provide a better experience and direct lodgement to lenders.
According to the aggregator, BrokerEngine performed well in its first 18 months, reporting an increase in subscribers from 1,000 to 2,300, 77 per cent of those being AFG brokers.
The aggregator also acquired 75 per cent of Fintelligence in December 2021 and has since reported that asset finance broker numbers have doubled, with monthly settlements increasing from $68 million to $312 million for the group at the end of FY23.
*This story was updated on 8 December 2023 to reflect that this number was the overall size of the mortgage market, not AFG's loan book size.
[Related: AFG reports rapid asset finance growth]
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