10 things to know about mortgage lending right now

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This Property Pulse explores 10 key insights shaping the mortgage market right now – from the rise in refinancing to the growing appetite for short-term fixed rates.

Saturday, November 8th 2025, 8:31AM

As interest rates begin to ease and housing market activity picks up, mortgage lending is following suit. But beyond the headline figures, the Reserve Bank’s detailed monthly lending data reveals a more nuanced picture of how borrowers and lenders are responding to shifting conditions. 

 

1. New mortgage lending is gaining momentum. Activity across house purchases, loan top-ups and bank switching (commonly referred to as refinancing) has increased year-on-year in 24 of the past 26 months, highlighting a sustained uplift in borrower confidence and market engagement.


2. The system is growing, too. The total value of outstanding home loans – known in the industry as ‘system growth’ – has climbed to $385 billion, up 5.6% over the past year. That marks the fastest annual increase since August 2022, when growth hit 5.7%. The rise reflects a sustained period where new lending and interest charges have outpaced repayments, contributing to a steady build-up in mortgage debt.


3. Short-term rates remain in favour. Nearly 30% of new loans this year have been on floating rates – a notable jump from the more typical 20% seen in previous years. Fixing for six to 12 months has also gained traction, accounting for around half of new lending in recent months. While longer-term fixed rates are more popular than they were in late 2024, their share remains modest at 28% in August, down from around 50% a year earlier. The trend reflects a clear borrower strategy: staying flexible to capitalise on falling interest rates.


4. Looser LVRs could benefit investors the most. In September, just 13% of lending to owner-occupiers was written at a high loan-to-value ratio (less than a 20% deposit), well below the official 20% cap and even the banks’ likely internal limit of 15%. For investors, the figure was even lower – only 0.5% of loans were written with less than a 30% deposit, underscoring the tighter credit conditions this group continues to face. The upcoming loosening of LVR restrictions from 1 December could provide some relief, particularly for investors, while also opening the door wider for first home buyers seeking pre-approvals.


5. First home buyers are leading low-deposit lending. In September, a record 51% of first home buyers secured a mortgage with less than a 20% deposit. This group now accounts for around 75 to 80% of all low-deposit lending to owner-occupiers, underscoring their growing presence in the market. With LVR restrictions set to ease from 1 December, first home buyers could find it even easier to access finance in the months ahead.


6. Interest-only lending remains contained. In September, 16% of new owner-occupier loans and 36% of investor loans were interest-only. While these figures may raise eyebrows, they remain well below previous peaks of 30% and 50% respectively. The data suggests interest-only lending is not being used at scale to manage repayment stress but rather reflects a measured approach by borrowers and lenders alike.


7. DTIs could shape lending policy in 2026. In September, 8% of first home buyers took out loans with a debt-to-income (DTI) ratio above six, while 11% of investor loans exceeded a DTI of seven. Both figures remain well below the Reserve Bank’s 20% cap, but the investor share is now at a near three-year high. As internal serviceability test rates continue to ease, DTIs are likely to become a more prominent consideration for both lenders and borrowers – particularly investors – in the year ahead.


8. Many borrowers are set to benefit from lower rates. Around 12% of existing home loans are currently on floating rates, while a further 33% are fixed but due to reprice by March. While some of these borrowers are already on competitive rates, many are likely to see a meaningful reduction in repayments as they roll onto lower rates – a shift that’s steadily feeding through to household budgets and the broader housing market.


9. Refinancing remains a key driver of activity. Borrowers continue to switch lenders at near-record levels, drawn by competitive cashback offers and the flexibility of today’s short-term loan structures. With nearly one in three new loans on floating rates and many fixed terms nearing expiry, the window for refinancing is likely to stay open – and active – for some time yet.


10. Repayment stress appears to have peaked at low levels. The share of non-performing loans – those more than 90 days overdue or already impaired – has edged down to 0.6%, after peaking at 0.7% earlier this year. That’s still well below the levels seen during the Global Financial Crisis, when the rate was roughly double. Banks have also begun trimming their bad debt provisions, suggesting confidence that the worst of the stress cycle may be behind us.

Looking ahead, the momentum in mortgage lending is likely to continue building. With interest rates easing, housing activity lifting, and policy settings becoming more supportive, conditions are aligning for a further rise in new lending volumes. First home buyers and investors alike are well-positioned to take advantage of the shifting landscape, while lenders prepare for a busier year ahead.

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