Key implication: A lower cash rate has shifted the mortgage market into expansion mode, but growth will not be evenly captured. Early movers combining algorithmic pricing, broker-first workflows and straight-through processing will outpace rivals on both volume and economics, while laggards face margin squeeze, capacity bottlenecks and rising credit scrutiny.

Market context: demand returns, led by refinancers with larger balances

After the Reserve Bank’s recent easing, applications have accelerated across both purchase and refinance segments. Industry data consistently show that mortgage activity is highly rate elastic, particularly for refinancing. As the Mortgage Bankers Association’s chief economist Mike Fratantoni has long observed in the US context, even modest rate declines unlock refinancing waves among rate-sensitive borrowers; Australia is following a similar pattern as borrowers recalibrate repayments and terms.

Two dynamics stand out. First, purchase applications are climbing as borrowing capacity improves; second, refinance activity has surged, with average loan sizes at or near record levels for refinancers—unsurprising given the outsized sensitivity of higher-balance loans to small rate moves. Locally, the mortgage market was valued at around AUD 348.7 billion in 2024, with projections indicating a compound annual growth rate of roughly 10% through 2034 and a potential market near AUD 913 billion. Government support—via the First Home Owner Grant and the First Home Loan Deposit Scheme—continues to stimulate first-home buyer cohorts, adding fuel to the near-term pipeline.

Business impact: growth is good—if you can underwrite it profitably

Rate cuts widen the pool of eligible borrowers and extend borrowing capacity, but they also compress net interest margins (NIM) unless offset by scale and lower unit costs. For major banks, profit pools hinge on three levers: (1) price realisation relative to cost of funds, (2) cost-to-serve per application, and (3) retention of existing customers through targeted repricing. For brokers—who now intermediate roughly seven in ten new mortgages—cycle time, lender service levels and certainty of approval dominate lender selection, not just headline rates.

Expect churn to accelerate. As fixed-rate loans originated during prior peaks roll off, repricing and refinance battles intensify. Banks with disciplined “next-best offer” engines, pre-approved retention pricing and proactive broker outreach will defend books more effectively than those relying on annual reviews. Conversely, non-banks and fintechs can win share via speed, transparent pricing and specialist credit niches (e.g., complex income, self-employed), though they must manage securitisation spreads and warehouse capacity as volumes rise.

Competitive advantage: digital origination and broker-first execution

In a high-volume upswing, the bottleneck is not demand; it’s fulfilment. Lenders that industrialise application intake, verification and credit decisioning will convert more pipeline at lower cost. The playbook is clear: deploy straight-through income and expense verification (open banking under the Consumer Data Right), automated valuations where feasible, and rules-based credit engines with human escalation for edge cases. Globally, digital mortgage platforms such as Blend have demonstrated material reductions in cycle times and abandonment rates; in Australia, digital-first lenders and neo banks have set expectations for same-day conditional approvals under the right conditions.

Non-banks and fintechs—Athena, Tic:Toc and others—are structurally advantaged by simplified stacks and narrower product sets, which enable faster decisioning and cleaner broker APIs. Incumbents can still win, but need to compress time-to-yes, publish consistent SLAs to brokers, and reward quality submissions with priority queues. Expect market share to drift toward players offering reliable 48–72 hour credit decisions and upfront valuation certainty.

Technical deep dive: how rate cuts actually flow through

The cash rate cuts lower bank funding costs through multiple channels: cheaper short-term wholesale funding, improved deposit pass-through (though deposit betas vary), and tighter swap rates that underpin fixed-term pricing. Variable-rate pricing passes through with a lag, influenced by competition and balance-sheet mix. Fixed-rate pricing is more directly a function of swap curves; lenders with robust pipeline hedging can quote confidently and protect margin as volumes spike.

On underwriting, serviceability hinges on lenders’ assessment rates and the prudential buffer set above actual rates—commonly 3 percentage points in recent cycles. With rates easing, more borrowers clear debt-to-income (DTI) constraints, but asset quality discipline remains central. Expect lenders to tighten verification for high LVR borrowers, investors with multiple properties and borrowers with significant variable income. Automated income verification via CDR and comprehensive credit reporting reduces error and speeds approvals without loosening standards.

Industry transformation: brokers, platforms and settlements

Broker share growth is reshaping operating models. Lenders that publish transparent policy, expose decisioning criteria to aggregator platforms and provide digital status updates will climb broker panels. On the back end, e-settlement adoption has continued to compress settlement timelines and reduce failure rates, further magnifying the benefits of digitised origination. The upshot: the end-to-end mortgage becomes a data pipeline, not a document chase.

For operations leaders, the critical metric is not just approval speed; it’s the variance of cycle time. Narrowing the spread—fewer blowouts—does more to improve broker advocacy than shaving a few hours off best-case deals. That requires better triage at lodgement, structured data capture and early escalation of valuation or title complexities.

Risks and scenarios: affordability, policy and funding costs

Demand-driven price growth can outpace income gains, raising affordability concerns and potential policy response. Prudential settings could tighten (e.g., DTI limits on investor-heavy segments) if leverage climbs too fast. Non-bank lenders must watch securitisation markets; if spreads widen, their pricing advantage narrows despite lower policy rates. On the household side, repayment capacity remains sensitive to inflation and wage growth—rate relief helps, but living-cost pressures can still drive arrears in lower-income segments.

Scenario planning for lenders should consider: (1) a benign soft-landing with continued easing and steady price growth; (2) a mid-cycle wobble with sticky inflation and volatile funding costs; and (3) a macroprudential intervention that curbs investor lending. Each scenario implies different pricing, underwriting and capital allocation settings.

Strategy roadmap: capture volume without losing the plot

• Compress time-to-yes: Target sub-72-hour credit decisions for standard deals; invest in broker APIs, automated valuations and CDR-based income verification.
• Price with precision: Use micro-segmentation and real-time funding cost signals; set guardrails on discretionary discounting to protect NIM.
• Defend the back book: Proactive retention with pre-approved offers before fixed-rate expiries; arm brokers with competitive repricing pathways.
• Industrialise credit quality: Maintain buffers, hard limits on high DTI clusters, and early-warning analytics using transaction data.
• Scale smartly: Flex capacity with variable underwriting pools and outsource non-core processes during spikes; measure variance of cycle time, not just averages.
• Diversify funding: For non-banks, secure additional warehouses and staggered maturity profiles to manage spread volatility in securitisation.

The signal in the noise: cheaper money is the catalyst, but execution is the differentiator. In this cycle, speed, certainty and discipline are the real rate cuts.