Australia’s mortgage wars have been making headlines in recent weeks, with growing expectations that softer borrower demand may see banks sharpen their rates to attract new business and retain existing customers.

While much of the discussion has focused on pricing, it’s also worth considering what is driving this competition and how borrowers have responded during similar periods in the past.

With mortgage applications reportedly down 20% from recent highs, the pool of new lending opportunities has become smaller. At the same time, lenders still need to grow their loan books and compete for market share. When growth becomes harder to find, competition for borrowers naturally increases, and pricing is often one of the most visible ways that competition plays out.

But pricing is only part of the story. Historically, periods of heightened competition have also influenced how borrowers engage with their debt, prompting more people to review existing lending arrangements, compare options and reassess whether their current finance still meets their needs.

We saw this dynamic play out during 2022 and 2023. As banks competed through discounted pricing and cashback offers, refinancing activity surged. In February 2023 alone, a record $19.9 billion of home loans were refinanced.

Source: ABC News, “Home loan lenders offering cashback incentives to attract customers in refinancing boom” (April 2023)

Beyond pricing: three considerations for commercial borrowers

1. Upcoming loan maturities

Periods of increased competition can encourage borrowers to focus on achieving a better rate, but they can also be a useful reminder to review upcoming loan maturity dates. Starting the conversation early can provide greater flexibility and more time to assess available options before a facility reaches maturity.

2. Credit appetite

Pricing and credit appetite do not always move together.

Lenders may become more competitive on transactions that align with their preferred borrower profile while becoming more selective in other areas. Understanding where appetite is strengthening, and where it may be narrowing, can be just as important as understanding pricing.

3. Borrower circumstances matter

Borrowers approaching a refinance may find their options look quite different to when their original facility was established.

Pricing is just one factor. Business performance, property values, servicing requirements and lender policy can all change over time, influencing the range of funding options available.

 

While the direction of the current mortgage wars remains to be seen, previous cycles suggest they can reveal more than where rates are heading. They can also prompt borrowers to take a closer look at their funding arrangements and future lending requirements.