Highlighting recent trends in mortgage lending

The housing market had a soft-ish finish to 2025, with stock levels still elevated, monthly sales roughly in line with the average of the last year, and prices down 0.4% since the end of 2024. In this article, we look past house sales and price data to examine some of the recent trends in mortgage lending activity, including a surge of bank-hopping in late 2025, how active investors are in the market, movements in “risky” lending, and recent borrower decisions about how to structure their mortgage debt.

Chart 1 shows monthly numbers of “new” residential mortgages being written by banks, split across borrowers getting a loan top-up, purchasing a property, switching loan providers, and “other”. Although there was a 25%pa increase in the number of mortgages written for purchasing property, the extraordinary result was a 169% surge in the number of mortgages for people changing loan provider. This figure was more than double the previous record month in June last year.

If you think that data looks questionable, you’re not alone. We queried the numbers with the Reserve Bank, who responded that although the data was “surprising”, it was consistent across two separate surveys the Bank runs. The Bank also said it has “a couple of other separate data collections that we cross referenced to ensure consistency” and “as a second level of data quality assurance we did communicate with several data providers to confirm their reported data and purpose to ensure correctness.”

In other words, the data appears to be correct. We followed up with contacts in a couple of the major banks, who confirmed that there were high levels of borrower switching taking place in late 2025 – driven by the 1.5% cashbacks offered by most of the banks. Like us, there were questions about the banks’ administrative capacity to meet a 35% lift in overall mortgage writing volumes, but the banks appear to have coped with the customer churn that occurred at the end of last year.

In summary, December’s surge in “new” lending looks likely to be a one-off and, because it was symptomatic of people changing banks, it does not signal that the housing market is reigniting.

Looking at the mortgage lending data in Chart 2 gives a glimpse into how borrower trends have unfolded over the last couple of year. First-home buyers made up 24% of the market in early 2024. Their presence in the market had lifted during 2023 due to house price falls, which meant their deposit savings were worth relatively more than at the peak of the market in 2021. However, first-home buyers share of activity eased to 19-20% during 2025 (ignoring December’s numbers, which have been skewed by the cashback-related churn).

First-home buyers’ reduction in market share was essentially picked up by investors, whose share of lending rose from 17% in early 2024 to 21% by the end of the year. The timing of most of this lift, in the first half of 2024, appears to align with announced changes in government policy around reducing the brightline test to two years and restoring full tax deductibility of mortgage interest. All other things being equal, the latter change would certainly be expected to boost investor borrowing.

But investor activity in the housing market is hardly booming. In part, tighter loan-to-value ratio restrictions for investors than owner-occupiers, which were first implemented in late 2016, have limited investor activity in the market. But rents are also under downward pressure around much of the country, rental yields are at uncomfortably low levels (see Chart 3), and people have limited expectations of capital gains. As a result, investor demand for purchasing housing remains relatively subdued.

Other data reveals there has been a gradual relaxation of lending standards in the mortgage market in recent quarters. Chart 4 shows that the proportion of new lending with a loan-to-value ratio (LVR) of over 80% has trended upwards from 9.6% of lending in early 2022 to a five-year high of 24% by late 2025 (again noting that December’s result is skewed by customer churn). This trend aligns with the allowed proportion of high-LVR lending to owner-occupiers lifting from 10% to 25% of lending. There has been a similar relaxation in LVR rules for investors over the same period.

During that period, much of the restrictiveness around lending has transferred across to debt-to-income (DTI) restrictions instead. Between the end of 2021 and mid-2024, the proportion of lending with a DTI of over five decreased from 59% to 24%. The DTIs introduced by the Reserve Bank in mid-2024 ended up being less restrictive than initially signalled, so this proportion of high-DTI lending has lifted back up to 41%. Chart 5 demonstrates that most of this lift has occurred in the DTI range of between six times and seven times income – there are no restrictions on lending to investors in this DTI range.

The latest lending data (in Chart 6, only up to November) shows that people have continued to concentrate their mortgage terms down the short end of the curve. A record (since 2021) 49% of new lending in November was on the floating rate, and there was another 9.2% of new lending being fixed for six months. Together, these figures gave a sense that borrowers were waiting to see whether further interest rate cuts were coming from the Reserve Bank, and they were anticipating fixing at lower rates in early 2026 – much like they were in late 2024.

It’s barely visible on the chart, but there has also been a clear lift in the proportion of new lending being fixed for five years. It represented 1.5% of total new lending in November, the highest proportion since October 2023. At that time, five-year rates were the lowest available (6.7%), and some people might have been choosing them to keep their payments affordable given the surge in mortgage rates over the previous two years – but possibly feeling a bit of regret now. If we exclude floating debt, five-year mortgages made up 3.0% of fixed lending in November, the highest proportion since mid-2022, when people were trying to insulate themselves against further interest rate rises.

The lift of as much as 60 basis points in wholesale swap rates since the Reserve Bank’s Monetary Policy Statement in late November suggests that, if people were looking to fix long at the best rate, they might have missed the opportunity. Fixed rates for 3-5-year terms have lifted by 30-40 basis points over the last two months, with smaller rises for 18-month and two-year terms. Only six-month and one-year rates have yet to start heading up again.

Taken together, the recent lending figures point to a market still adjusting rather than accelerating. December’s spike in churn was an anomaly driven by cashback incentives rather than renewed demand. Investor activity, while slightly higher, remains constrained by yields, policy settings, and muted expectations of capital gains. Lending standards have eased at the margin but continue to be shaped by DTI limits, and borrowers’ strong tilt toward short‑term structures highlights ongoing uncertainty about the interest rate path. As we move into 2026, these dynamics suggest a period of continued moderate activity, rather than any rapid lift in demand in the housing market.