Mortgage competition intensifies as home loan demand weakens
Australian lenders are competing more aggressively for a smaller pool of mortgage business as higher interest rates, weaker housing conditions and softer borrower demand put pressure on loan growth.
The major banks are contending with a $2.5 trillion mortgage market in which competition is intensifying even as new borrowing slows. Mortgage brokers surveyed by Macquarie reported that ANZ was offering the most competitive interest rates, while Westpac had improved its loan approval times, lending terms and broker experience.
The shift comes as first-home-buyer demand has weakened sharply. Equifax data cited in the report showed demand from first-home buyers was down 20 per cent in August compared with the same month last year, while refinancing activity was 12 per cent lower. Recent Equifax data also confirms a marked contraction in first-home-buyer mortgage applications during August.
Higher rates put pressure on borrowers
Housing conditions have become more difficult following three official interest-rate increases this year and federal budget tax changes affecting property investment. Equifax has also linked the 2026 slowdown in mortgage demand with the combination of rate increases and tax reforms.
Across the five largest capital cities, the report said prices had fallen almost 4 per cent over three months, contributing to increased caution among prospective borrowers.
Banks have also raised fixed mortgage rates in recent weeks. The source article said lenders were preparing for the cash rate to increase from 4.35 per cent to 4.6 per cent. Expectations of another RBA increase were also being reported ahead of the September policy meeting.
The article estimated that if the cash rate eventually reached 4.85 per cent, a borrower with a $600,000 mortgage could face approximately $456 more in monthly repayments, or almost $5,500 extra annually, compared with the beginning of the rate-rise cycle.
Macquarie analysts Victor German and Carlos Cacho said intensified mortgage competition was also putting pressure on lender margins after a period of stronger returns.
Banks sharpen broker offers
Macquarie’s survey of hundreds of mortgage brokers found customers’ maximum borrowing capacity had risen to almost 40 per cent above its recent low, even as overall mortgage demand remained constrained.
Macquarie Bank remained brokers’ most-favoured lender in the survey. Among major-bank brands, Bankwest performed most strongly, followed by Westpac and St George.
Westpac recorded a significant improvement in broker sentiment after improving systems and processing times. National Australia Bank’s standing weakened, with brokers citing systems, processes and less competitive pricing.
ANZ’s systems were also rated relatively poorly, but sharper pricing — particularly for investor and interest-only loans, along with refinance cashback offers — supported its overall performance.
The survey also found borrowing capacity had become the most important consideration for customers after interest rates. Some brokers reported that lenders were adjusting policy settings and serviceability assessments in ways that could make borrowing easier, although overall approval outcomes were broadly stable from a year earlier.
Equifax executive general manager Moses Samaha said mortgage demand could weaken further if rates rise again and house prices continue falling.
For property investors, the lending environment therefore presents competing forces: banks are fighting harder for mortgage business, but higher borrowing costs, softer property prices and tighter servicing considerations continue to shape how much borrowers can access and which loan structures remain workable.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review, published 28 September 2026. Source: www.afr.com
