Banks Step Up Lending as Rate Cuts and First Home Scheme Boost Demand
Australia’s mortgage market is surging again, with major banks ramping up lending activity as falling interest rates and new government support schemes inject fresh demand into housing.
According to reporting by Clancy Yeates (SMH, Sept 30, 2025), Westpac, NAB, and ANZ are closing their financial year on the back of faster housing credit growth — the strongest in more than two years. With the Reserve Bank delivering three 0.25% rate cuts this year, mortgages and business loans are expanding rapidly, while households are enjoying some financial breathing room.
What’s Driving the Surge?
Lower Rates: Borrowing costs are down, and history shows that credit growth often accelerates well after the final rate cut in a cycle.
First Home Buyer Scheme: From October 1, the government will cover lenders’ mortgage insurance (LMI) for deposits between 5% and 20%. This is a game-changer for first home buyers, especially in capital cities where LMI can easily cost tens of thousands.
Bank Competition: While loan volumes are strong, the big four are under pressure from competitors like Macquarie and mortgage brokers, leading to aggressive pricing.
What It Means for the Property Market
The combination of lower rates and government stimulus could act as a double tailwind. First home buyers are likely to enter the market in greater numbers, which may put further pressure on already limited housing supply. This could keep pushing property values higher into 2026 — not just in capital cities but also in regional lifestyle markets.
However, there are also risks. Fierce bank competition could squeeze margins, and investors will be watching how the majors manage costs amid job cuts. Still, analysts point to strong credit quality and low bad debt charges as positives.
Insights
This cycle looks very similar to past housing booms: rate cuts spark confidence, buyers rush in, and credit growth peaks months after the final cut. The new first home buyer scheme adds an extra layer of demand — meaning prices could accelerate faster than many expect.
For buyers, this underscores the importance of acting early rather than waiting for the “perfect” time. For investors, it means the banking sector could deliver modest profit growth, even with tighter margins.
The key risk? If supply doesn’t improve meaningfully, affordability pressures will only intensify — and today’s “boost” for first home buyers may end up fuelling tomorrow’s higher entry costs.