The Australian dream of homeownership is being tested against the backdrop of a residential mortgage market that has surged to a record-breaking $2.41 trillion, propelled by a relentlessly appreciating property market. This unprecedented growth is creating a complex and challenging landscape for both current homeowners and aspiring buyers. While the nation’s major banks continue to hold significant power, they face increasing pressure from aggressive challengers who are steadily reshaping the competitive environment. The outlook is a difficult puzzle, shaped by the conflicting forces of projected property price increases and the looming potential for new interest rate hikes, forcing many to question the true cost of securing a home.
The State of the Market: Record Growth and Shifting Tides
The Trillion-Dollar Boom
The sheer scale of Australia’s residential mortgage sector has reached new heights, with the total value held by authorized deposit-taking institutions (ADIs) climbing to an historic $2.41 trillion as of November. This milestone is not a sudden spike but the result of sustained and robust expansion, evidenced by a 0.67% monthly increase and a significant 6.36% annual growth rate. The primary engine behind this phenomenal expansion is a property market that has largely defied expectations of a cooldown. Rising home values have provided a powerful tailwind, continuously fueling the growth of loan books across the entire banking sector. As property prices climb, so does the amount of capital required for purchases, creating a self-perpetuating cycle of market growth. This resilience in asset appreciation has provided a solid foundation for lenders, encouraging further credit extension and contributing to the market’s record-breaking valuation, a trend that shows little sign of abating in the near term.
The Big Four’s Grip
Within this expanding marketplace, the traditional power structure remains intact, though not unchallenged. The Commonwealth Bank of Australia (CBA) solidifies its position as the undisputed leader, commanding a formidable 25% of the market with a residential mortgage book valued at an immense $611.5 billion. CBA also led the pack in absolute growth for the month, adding another $4.6 billion to its portfolio. Westpac follows as the second-largest lender, holding a 21% market share with its $498.5 billion loan book, also posting a strong monthly gain. The other members of the “Big Four,” National Australia Bank (NAB) and ANZ, maintain significant but smaller shares of 14% and 13%, respectively. However, the performance across this dominant group is not uniform. ANZ’s activity was notably subdued, as it recorded its smallest monthly loan book increase since April 2022, adding a mere $189 million. This lackluster growth signals that even at the highest echelons of the market, competitive pressures are creating divergent outcomes and potential vulnerabilities.
The Challenger’s Ascent
The most dynamic narrative unfolding within the Australian mortgage market is the aggressive and sustained expansion of challenger institutions, which are steadily eroding the long-held dominance of the major banks. Macquarie Bank has emerged as the standout performer in this category, continuing a rapid and consistent growth trajectory that has made it a significant market force. In November alone, Macquarie’s mortgage portfolio swelled by an impressive $3.6 billion, representing a remarkable monthly increase of 2.32%. This single month’s performance is part of a much larger trend, contributing to an exceptional annual growth rate of nearly 24%. As a result, Macquarie now holds approximately 7% of the entire residential loan market with a portfolio valued at $160.8 billion. This is not merely incremental growth; it is a disruptive expansion that is fundamentally altering the competitive landscape and putting tangible pressure on the incumbent leaders to adapt their strategies and offerings.
A New Competitive Era
The rise of challengers like Macquarie is not a recent phenomenon but rather the culmination of a consistent, long-term shift in market dynamics. An analysis of historical data reveals a clear pattern of diminishing market concentration among the Big Four banks. Six years ago, this powerful quartet collectively held a commanding 78.3% of all residential mortgages from ADIs. Today, that figure has slipped to 73.6%. While this gradual decline may not yet be a cause for alarm among the majors, the persistent high-growth performance of Macquarie is described as effectively “rattling the cage.” The success of this key challenger demonstrates that its alternative product offerings, competitive pricing, and differentiated service models are clearly resonating with a growing segment of Australian borrowers. This trend signals a move away from the traditional oligopoly, suggesting that consumers are increasingly willing to look beyond the established names to find financial products that better suit their needs.
Navigating the Future: Projections and Pressures
The Property Price Surge
The historic expansion in mortgage balances is fundamentally underpinned by a powerful and sustained rebound in national dwelling values. Data from Cotality’s Home Value Index reveals that property values surged by 8.6% during the 2025 calendar year, marking the most significant annual increase recorded since the boom of 2021. This substantial asset appreciation provides a solid foundation for continued loan growth and lender confidence. Looking ahead, forecasts remain positive, pointing to further solid price gains across Australia’s capital cities despite the prospect of interest rate volatility. Projections suggest that if current trends hold, the median house price in Sydney is poised to increase by approximately $79,385 to a new high of $1,667,094. Meanwhile, the median house prices in both Perth and Adelaide are on track to break the symbolic $1 million barrier for the first time. This anticipated upward momentum in property values across major urban centers suggests that the affordability challenges facing new buyers are likely to intensify.
The Borrower’s Dilemma
The outlook for the year presents a “split-rate outlook,” creating a complex and uncertain environment for borrowers. On one hand, some economists are warning of potential new cash rate hikes by the Reserve Bank of Australia (RBA) to curb inflation. On the other hand, major lenders are projecting multiple rate cuts over the next 18 months. This divergence creates a sharp dichotomy for market participants. For existing homeowners, continued property price growth is largely beneficial, building equity in their primary asset and creating opportunities for favorable refinancing. However, the situation is markedly tougher for first-home buyers. They face a double-edged challenge: needing to save for a larger deposit to keep pace with soaring prices while simultaneously confronting the possibility of reduced borrowing power if interest rates increase. It is estimated that just two RBA rate hikes could slash the maximum borrowing capacity for a single individual on an average wage by around $24,000, compounding the affordability crisis for those trying to enter the market.
A Prudent Path Forward
In this high-stakes market, prospective buyers found that success depended on meticulous financial planning and a conservative approach to debt. The core challenge was not merely securing a loan but ensuring long-term financial stability in an environment of rising asset prices and interest rate uncertainty. Those who successfully navigated these conditions were often the ones who prioritized saving a substantial deposit well beyond the minimum requirement. Furthermore, a critical step for these prudent buyers involved stress-testing their mortgage repayments against a potential three-percentage-point rise in interest rates. This exercise ensured that their financial commitments would remain manageable even if borrowing costs increased significantly, providing a crucial buffer against future market shifts. This disciplined strategy of building equity and planning for volatility ultimately proved to be the most reliable path to achieving homeownership.
