Australia’s mortgage landscape is in a tense phase. The major players have dominated for years but a challenger bank has been steadily lifting its presence and is now using aggressive growth to close the gap. At the same time households are feeling cost‑of‑living pressure and the prospect of higher interest rates is making borrowers more sensitive to even small changes in repayments. This mix of rising competition, big balance sheets and nervous customers is setting the stage for a very different year in home lending.
Recent data from the banking regulator shows the challenger lifted its mortgage book by about 2.45% in December alone, the fastest pace it has managed since mid‑2022 and more than three times the average growth across all banks. That pushed its home loan portfolio to around $165 billion and lifted its share of the market to just under 7%, up roughly 1 percentage point over the past year. By comparison the two largest banks each grew their much bigger loan books by around 0.8% in the same month, only slightly ahead of system growth of about 0.74%, which kept their market shares steady near 25% and 21%. Another major lender expanded more slowly than the system and one of the big four actually saw its mortgage book shrink, which added pressure on its leadership to restart growth.
On the ground competition is playing out through pricing, branding and relentless efforts to stop customers walking away. Brokers say one major bank is leaning on sharp rates and heavy summer sports sponsorships to stay front of mind while another is using a secondary brand with cheaper pricing to appeal to brokers and price‑conscious borrowers even as its main brand holds a premium image. Behind the scenes all the large lenders appear to be investing in retention teams that step in at the last moment with discounted rates, fee waivers and even cashback offers to keep customers from refinancing elsewhere. This fight to hold market share looks like it is weighing on lending margins, with analysts already warning that profit pressure from home loan pricing will be a central theme when banks report their next results.
Looking ahead the bigger story seems to be how this mortgage tug‑of‑war will intersect with a changing economic backdrop. Most major banks expect the central bank to lift rates again soon after a higher‑than‑expected inflation reading and higher borrowing costs usually spur more refinancing as customers search for savings. That could intensify competition even further but also bring fresh concerns about borrowers’ ability to cope. Analysts suggest that as government support winds back and the jobs market softens, rising rates may expose more stressed households, which would lead to closer scrutiny of credit quality and a gradual rise in bad debts. Bank share prices have already come under pressure in recent months and it looks like investors will be watching closely to see whether strong headline earnings can offset growing worries about margins, arrears and the long‑term value of these sprawling mortgage books.
