Key implication: competition in Australian mortgages will intensify before it eases. Recent commentary indicates that a lack of rate relief is unlikely to temper rivalry, with investor activity resilient and first‑home buyers re‑entering thanks to government support programs. In a supply‑constrained housing market, that means lenders face a margin squeeze as they fight to acquire and retain customers who have more choice, more information and more bargaining power.

Market context: demand pressure meets policy tailwinds

Two demand engines are firing at once. On one side, investors are active, hunting yield and potential capital gains. On the other, first‑home buyers are returning, supported by schemes such as the First Home Guarantee (which enables low‑deposit purchases with a government backstop). Public material summarised in the State of the Housing System (2025) points to increased competition in mortgage lending and policy controls shaping credit supply, while analysis from 2024 noted the share of new loan commitments to first‑home buyers had risen amid targeted support. Budget settings for housing infrastructure and supply (Building Australia’s Future, 2025) aim to expand capacity, but supply elasticity is slow; the near‑term effect is to keep purchase competition elevated.

Translation for lenders: purchase volumes remain defensive, refinancing churn persists, and cashback‑style tactics yield diminishing returns. Pricing, speed to yes, and broker relationship quality are the new battlegrounds.

Five Forces lens: why rivalry stays high

Using Porter’s Five Forces clarifies the dynamics:

- Competitive rivalry: elevated. Major banks, regionals and non‑banks crowd the prime segment; digital origination reduces switching friction.

- Buyer power: rising. Borrowers comparison‑shop via brokers and search; more products look substitutable.

- Threat of substitutes: moderate. Renting remains an alternative, but government guarantees make ownership attainable for more households, sustaining demand for mortgages.

- Supplier power: constrained. Capital costs remain sensitive to wholesale markets; with limited rate relief, lenders have less room to widen net interest margins.

- Barriers to entry: high on capital and regulation, lower on distribution due to digital channels and broker networks.

The sum of these pressures points to ongoing margin compression unless lenders create differentiated value beyond headline rates.

Business impact: margins, acquisition and the distribution choke‑points

Net interest margins are likely to stay under pressure through 2025 as lenders price keenly to win both investors and first‑home buyers. Acquisition economics are being reshaped by two choke‑points:

- Brokers: The broker channel remains the dominant route for new mortgages, concentrating influence over product discovery and selection. Lenders that deliver fast, transparent credit decisions and clean settlement execution will win broker mindshare.

- Search and digital: The Australian Competition and Consumer Commission reports Google holds about 94 per cent share of general search (as at August 2024). That concentration affects cost‑per‑acquisition: performance marketing in a near‑monopoly search market is expensive, pushing lenders to invest in brand, broker partnerships, and owned channels to dilute paid media dependence.

Operationally, expect higher retention spend as sophisticated churn models highlight customers at risk of refinancing. For property developers and agents, faster sales cycles in specific price bands may be offset by appraisal volatility as valuation models digest patchy comparables.

Competitive advantage: responsible AI and the speed/fairness frontier

In a market where most products are variants of principal‑and‑interest with similar features, process becomes product. The edge lies in compressing time‑to‑credit‑decision while improving explainability and fairness. That’s where AI comes in — but with Australian guardrails. The Federal Government’s 2024 policy on public‑sector AI use, framed as “Responsible choices”, sets the tone. As Lucy Poole noted, “This policy will ensure the Australian Government demonstrates leadership in embracing AI to benefit Australians.” In parallel, Australia’s AI Ethics Principles emphasise safety, reliability and accountability — a blueprint lenders can adopt for model governance.

Tactically, lenders that deploy machine‑learning for document classification, income verification, fraud detection and retention propensity can remove days from approval timelines. Yet the 2025 review of Australia’s AI ecosystem flags a commercialisation gap: many pilots, fewer scaled deployments. Closing that gap — with rigorous model risk management and broker‑friendly workflows — is a differentiator.

Technical deep dive: the new origination stack

Winning architectures share six traits:

1. Data ingestion fabric: automated extraction from payslips, bank statements and ATO data, with robust consent management under open banking rules.

2. Feature stores for credit: engineered variables for serviceability, spending stability and buffer capacity; continuous monitoring for drift.

3. Hybrid decisioning: rules for policy hard stops; interpretable ML for ranking near‑borderline files; counterfactual explanations to evidence fairness.

4. Valuation intelligence: AVMs for triage and panel valuation orchestration; audit trails to satisfy review standards.

5. Broker portal UX: real‑time status, conditional asks surfaced early, and SLA transparency to reduce back‑and‑forth.

6. Responsible AI overlays: bias tests by cohort (e.g., first‑home buyer profiles), model cards, and incident playbooks aligned to Australia’s ethics principles.

The commercial payoff is twofold: lower abandonment and higher broker Net Promoter Scores, which in turn increase flow without sacrificing risk appetite.

Policy and risk: macroprudential guardrails matter

The State of the Housing System (2025) highlights the role of government controls over lending activities. That implies lenders must be ready for toggles such as investor lending caps, serviceability buffers, or LVR adjustments if overheating risk emerges. Building flexible product factories — able to re‑price and re‑configure LVR tiers, offsets and package features quickly — is now a strategic capability, not an IT project.

Outlook to 2026: three scenarios to plan against

- Glide‑path easing: If rates edge lower into 2026, affordability improves at the margin. Expect a further lift in first‑home buyer participation alongside persistent investor demand, sustaining competition for prime borrowers.

- Policy pivot: Expansion or retargeting of the First Home Guarantee could swing demand towards lower‑deposit segments. Lenders with specialised underwriting for guarantee‑backed loans will out‑convert rivals.

- Volatility shock: If inflation proves sticky, rate relief stalls. Investor demand might cool, but refinancing waves resume as fixed‑rate cohorts roll. Operational agility and retention analytics become the profit centre.

Case in point: guarantee‑aligned underwriting

Participating lenders in government guarantee programmes have re‑tooled flows to recognise the guarantee’s risk transfer while staying inside internal risk appetites. The practical moves include bespoke LMI handling, targeted serviceability assessments for lower deposit cohorts, and broker education on documentation to reduce rework. Early evidence from public reporting points to increased uptake by eligible first‑home buyers, suggesting that process framing, not just pricing, determines conversion.

Strategy playbook: what leaders should do now

- Re‑price with precision: Use micro‑segment contribution analysis by channel and broker to avoid broad discounting. Tie rate‑for‑risk to measurable lifetime value signals.

- Build the explainable AI core: Stand up model governance aligned to Australia’s ethics principles; require human‑in‑the‑loop for edge cases; publish model summaries to brokers to build trust.

- Double‑down on broker SLAs: Compete on certainty — same‑day triage, 48‑hour credit decisions for clean files, and proactive valuation management.

- De‑risk acquisition costs: Shift spend from pure search to owned content, partnerships, and referral ecosystems to reduce exposure to the search duopoly’s pricing power.

- Prepare for policy toggles: Scenario‑test product mixes under LVR/serviceability changes; ensure pricing engines can pivot in days, not months.

The market will remain a knife‑fight. But with disciplined pricing, operational speed, and responsible AI, lenders can grow share without trading away the balance sheet.