While major banks continue to dominate, competition from non-bank lenders and mortgage brokers is intensifying, driven by digital transformation and changing consumer preferences, according to the 2025 PEXA Lender Mortgage Trends report.
This shift comes as Australian property prices continue to climb, buoyed by a persistent housing shortage, strong investor demand, and expectations of further interest rate cuts later in 2025.
The Australian banking sector has experienced significant consolidation over the past two decades.
“The number of banks in Australia has greatly declined the past two decades, driven by the consolidation of credit unions and building societies, which numbered 188 in 2004, but has reduced in number of 84% to 30 entities in the end of 2024,” said Marcella Choy (pictured right), senior research analyst.
This trend is attributed to smaller banks’ need to achieve scale, diversify products, and invest in digital infrastructure to meet consumer demand for digital services and security.
Despite increased competition, major banks remain the primary source of new home loans and refinances, both in volume and value terms.
“This is unsurprising, given the landscape of the Australian financial banking sector,” Choy said.
The dominance is especially pronounced in Victoria, where major banks and their subsidiaries secure a higher share of new loans than in New South Wales or Queensland.
Non-bank lenders (non-ADIs) and mortgage brokers are becoming increasingly important, particularly for borrowers who may not qualify for traditional loans.
Over half of new mortgages are now sourced through third parties such as brokers – a trend that continues to grow, especially benefiting foreign subsidiaries and smaller domestic banks, which source more than 75% of their new mortgages this way.
Major and customer-owned banks are more likely to finance first-home buyers, often taking on riskier loans with higher LVRs and a greater share requiring lenders mortgage insurance (LMI).
In contrast, non-ADIs typically issue smaller loans with lower LVRs and fewer loans above 80% LVR.
Non-ADI lending has surged in Queensland, while the value of new loans from other domestic banks has declined.
Non-major lenders now hold nearly half the refinance market in Queensland, and non-bank lenders are the leading non-major players in New South Wales and Victoria.
Refinancing activity has become especially competitive following recent RBA rate cuts.
“Given the Reserve Bank of Australia’s (RBA) decisions to lower the cash rate in two consecutive meetings (February and May) in 2025, lenders have begun to make moves to win refinances, prematurely slashing fixed rate loans and increasing cashback offers,” Choy said.
The PEXA report emphasises the importance of digital innovation.
“Integration can improve efficiency and improve customer satisfaction, fostering greater competition in the market for residential lending,” Choy said.
For more insights, see the full PEXA Lender Mortgage Trends report.
