Context: Rate relief meets pent‑up demand

Australia’s mortgage market has moved off the brake. Following recent easing in the cash rate, average mortgage rates have fallen to roughly a 11‑month low, triggering a rapid pickup in activity. Multiple industry data sets indicate applications up nearly 30% over several weeks, led by refinancing but with purchase demand clearly re‑engaging. Equifax reported a 10% year‑on‑year rise in mortgage demand in August following the rate move, despite thinner property listings—evidence that buyers are stepping in as borrowing capacity improves. Broker confidence has rebounded, with a recent industry survey showing 81% holding a positive near‑term outlook.

The macro tailwinds are reinforced by policy supports for first home buyers (e.g., the First Home Owner Grant and the First Home Loan Deposit Scheme/First Home Guarantee). Market intelligence suggests a sizeable runway: the Australian mortgage lending market was valued at around AUD 348.68 billion in 2024 and is projected to reach AUD 912.64 billion by 2034, a 10.10% CAGR. The question for lenders is not whether demand exists—it’s who can convert it efficiently without sacrificing margin or credit quality.

Decision: Pivoting from defence to growth

After two years of defensive posture—tight pricing, conservative credit, cost control—leading lenders are shifting to selective growth. The decision set is clear:

• Where to play: Refinance vs purchase; investors vs owner‑occupiers; fixed vs variable. In Australia’s predominantly variable market, early movers are sharpening variable rates and selectively offering short‑dated fixed terms to lock in quality segments.
• How to win: Price narrowly where funding allows; compress time‑to‑yes; lift broker productivity; and target underserved niches (self‑employed, near‑prime) with better data rather than looser policy.
• What to protect: Net interest margin (NIM) and credit standards. Broad‑based cashbacks are out; targeted pricing and retention offers are in.

Strategically, banks aim to defend primacy and deposits, while non‑banks lean into speed and service. With the broker channel accounting for roughly 70% of new flows, broker enablement has become a board‑level priority.

Implementation: Digital throughput and risk discipline

Execution separates signal from noise. The leaders we analysed share five moves:

• Straight‑through processing (STP): Automating ID verification, income verification and valuation ordering trims days from cycle time. Lenders integrating Consumer Data Right (open banking) feeds with decisioning engines are cutting manual touches by 30–50% in prime segments.
• Broker toolkits: Real‑time pricing approval, scenario sandboxes, and status APIs inside broker CRMs reduce rework and boost pull‑through. Tiered SLAs for accredited high‑quality brokers reward clean applications.
• Risk triage: Machine‑assisted policy checks route low‑risk files to STP and flag edge cases early. Credit remains tight on high DTI, high LVR, and interest‑only investor loans, but documentation burden is right‑sized via data, not blanket rules.
• Retention playbooks: Proactive repricing and pre‑emptive outreach when a discharge request is detected curb churn as refinance volumes rise.
• Funding alignment: Treasury coordinates rate specials with term funding and RMBS windows to avoid margin leakage, using interest rate swaps to hedge pipeline risk.

Results: Early wins and market share shifts

While it’s early days, the scoreboard is moving:

• Volume: Applications have risen by nearly 30% in the most recent surge, with Equifax measuring a 10% year‑on‑year lift in August alone post‑cut.
• Mix: Refinancing leads the rebound, but purchase applications are climbing as serviceability improves. First‑home buyer enquiry is up alongside policy support.
• Speed and pull‑through: Lenders deploying STP and broker‑embedded pricing report materially faster time‑to‑approval, often halving from prior peaks, and improved pull‑through rates as conditional approvals become more reliable.
• Share dynamics: Non‑banks are capturing incremental share in segments where speed trumps brand, while major banks are defending via sharper retention repricing and deposit‑funded pricing advantages.

The important caveat: economists are split on durability. Some view the rate decline as a function of market‑priced RBA easing and global bond rallies—supportive but reversible. Others argue that easing inflation and stable employment can sustain lower mortgage rates. Sensible operators are planning for both paths.

Technical deep dive: Pricing, hedging and capacity

Australian mortgage pricing transmits from the cash rate through the bank bill swap rate (BBSW) and the swap curve, layered with funding spreads (deposits, senior unsecured, covered bonds, RMBS). Variable mortgage rates are the primary product; fixed rates price off interest rate swaps of matching tenors. When the cash rate falls, deposit betas and term funding resets create lagged but real NIM effects.

Best‑practice treasury coordination includes:

• Pipeline hedging: Use short‑dated swaps/futures to stabilise margin between credit decision and settlement, minimising adverse moves if the curve rallies.
• Selective specials: Target rate discounts to cohorts with lower probability of early discharge, reducing repricing risk.
• Capacity modelling: Queue simulation by segment to ensure SLAs hold under a 2–3x surge in lodgements; constrain marketing if turn‑times slip and NPS risks rise.

Credit risk models must also adjust for cycle turns: prepayment speeds increase as rates fall; loss‑given‑default assumptions may improve with price growth, but prudent lenders resist loosening HEM assumptions or DTI caps without robust, back‑tested evidence.

Market context and competitive landscape

Australia’s broker‑centric distribution (circa 70% of flows) intensifies competition on experience and speed. Traditional banks are investing in cloud‑based loan origination and data orchestration to close the gap, while non‑banks differentiate through nimble credit and service. With the market projected to grow from about AUD 348.68 billion (2024) to AUD 912.64 billion by 2034, capacity and cost‑to‑serve will be determinative.

Globally, the contours rhyme but differ in mechanics: the US shows surges in refinancing and adjustable‑rate usage when rates break lower; the UK’s two‑ to five‑year fixed cohorts reset in waves; Australia leans variable with frequent repricing. The strategic benchmark is universal: compress cycle time, protect NIM, and win the retention battle.

Lessons: A playbook to convert a cyclical bounce into durable advantage

Five actionable takeaways for lenders and brokers:

• Price with discipline, not publicity: Retire broad cashbacks; deploy micro‑segmented pricing aligned to funding windows and retention probability.
• Industrialise STP: Aim for 50%+ of prime applications to decision within hours using CDR data, automated valuations and income verification.
• Broker as a force multiplier: Offer real‑time decisioning, transparent SLAs and accreditation tiers. Invest in broker education on policy and packaging to lift first‑time‑right rates.
• Defend the back book: Stand up always‑on repricing and discharge interception. Measure save rates and time‑to‑contact as hard KPIs.
• Plan for volatility: Run twin scenarios—further easing vs rates backing up. Lock capacity buffers, hedge pipelines, and stress NIM for another 50–75 bps of curve movement.

The signal in the noise: easing rates lit the spark, but operating discipline will determine who captures the burn. Those that align pricing, funding and digital execution now will exit this cycle with more customers, lower unit costs and a sturdier franchise.