The sharpest home loan rates in the market have fallen below 6 per cent, with non-bank lenders and regional banks competing aggressively for refinancing business. The gap between the majors and second-tier lenders now sits between 50 and 80 basis points on advertised variable rates, the widest margin in over two years.
This isn’t new behaviour, non-banks and regionals always price tighter than the big four when hunting volume, but the spread has widened faster than usual since November 2025. The question for borrowers: is this sustainable competition or a sign that some lenders are stretched for funding and need the volume at any cost?
Who’s cutting and why
Non-bank lenders and second-tier banks hold around 15 per cent of the mortgage market by value. They don’t take deposits, so they fund loans through wholesale markets and securitisation. When the property market slows and new borrowing drops, exactly what’s happened over the past six months, they need refinancing volume to replace maturing loans and keep their warehouse lines active.
Regional banks sit in a similar spot. They have deposit funding but smaller balance sheets, so they can’t afford long stretches of low origination. Cutting rates to attract switchers is cheaper than letting loan books shrink.
The majors, by contrast, aren’t under the same funding pressure. They’re still writing new loans to upgraders and investors with equity, and their deposit bases are stable. They’ll match or beat a competitor’s rate for high-LVR or complex borrowers when retention is worth it, but they’re not leading the pricing down.
The actual rates and who qualifies
Advertised variable rates from non-banks are sitting between 5.69 per cent and 5.89 per cent for owner-occupiers paying principal and interest with at least 20 per cent equity. Regional banks are offering similar rates with slightly tighter serviceability buffers.
The majors are clustered between 6.19 per cent and 6.39 per cent on standard variable products, though discounting happens case by case. Investment loans and interest-only structures carry a 20-40 basis point premium across all lender types.
Not every borrower qualifies. Non-banks and regionals tighten credit faster when the market softens, they want salary continuity, clean credit files, and borrowers with equity buffers above 20 per cent. If you’re self-employed, carrying multiple properties, or sitting close to 80 per cent LVR, expect longer assessment times and higher scrutiny than you’d get during a rising market.
Key numbers
- Advertised variable rates from non-banks: 5.69–5.89%
- Majors’ standard variable rates: 6.19–6.39%
- Spread between non-banks and majors: 50-80 basis points
- Non-bank and regional market share: ~15% by loan value
- Typical monthly saving on $600k loan refinancing from 6.3% to 5.8%: ~$185
The sustainability question
Lower rates attract volume, but volume only helps if the loans perform and the funding cost doesn’t blow out. Non-banks’ funding costs move with wholesale rates and credit spreads, both of which have been stable over the past quarter. That gives them room to price tighter without eroding margin to dangerous levels, for now.
The risk emerges if arrears rise or securitisation markets reprice credit risk. Non-banks can’t absorb losses the way deposit-funded banks can, and if investors demand higher yields on mortgage-backed securities, those lenders either pass the cost to borrowers or pull back on volume. We haven’t seen that yet, but it’s the mechanism to watch if property prices keep falling and employment softens.
Regionals face a different constraint: capital. They’re required to hold more equity against mortgages than the majors under current prudential rules, so rapid loan book growth eats capital faster. If they want to keep lending at scale, they either raise equity or slow origination. Most will opt to slow rather than dilute shareholders.
What it means for your refinancing decision
If you’re on a standard variable rate above 6.2 per cent and you meet the credit criteria outlined earlier, switching will save you real money. On a $600,000 loan, moving from 6.3 per cent to 5.8 per cent cuts monthly repayments by around $185, or $2,220 a year.
The trade-offs: application effort, potential valuation risk if your property has dropped in value since you bought, and the chance that your new lender tightens serviceability partway through the process. Non-banks also carry refinancing risk, if you need to move again in two years and the market’s still soft, they may not be the ones offering the best rate next time.
Serviceability is the practical filter. Non-banks assess your income against a buffer rate (usually 3 percentage points above the loan rate), so if your household expenses have climbed or your income structure has changed, you may not qualify even if the advertised rate looks attractive. Run the numbers with a broker before you commit time to the application.
For borrowers with SMSFs, complex income, or multiple properties, the majors or second-tier banks remain the clearer path. Non-banks will quote but often price those scenarios closer to the majors anyway once risk loadings are applied.
Red flags that would change the picture
Three developments would shift this from opportunity to warning:
-
Arrears spike above 1.5 per cent across non-bank portfolios. Right now arrears sit around 1.1–1.2 per cent for most non-banks, manageable and within historical range. If that climbs toward 2 per cent, expect tighter credit and higher rates as those lenders reprice risk.
-
Wholesale funding costs jump. If the RBA holds rates but global credit markets reprice mortgage risk, possible if offshore central banks pivot or recession fears return, non-banks lose their pricing edge fast.
-
Volume collapses further. Refinancing activity in the past quarter was down roughly 18 per cent compared to the same period a year earlier. If that accelerates to 30 per cent-plus, some non-banks will need to merge or exit rather than keep competing at unsustainable margins.
None of those have materialised yet. The current rate gap reflects competition for volume in a slower market, not panic.
Next step
If you haven’t reviewed your rate in the past 12 months and you’re paying above 6 per cent, get three quotes: one from a non-bank, one from a regional, one from your current lender’s retention team. Compare the actual rate after fees, the serviceability test, and the exit terms if you need to move again.
If you’re inside 18 months of a fixed-rate expiry, model the break cost now and decide whether switching early makes sense at current variable rates. For most borrowers on fixes above 4.5 per cent, it won’t, but if you’re on a 2021 fix above 5 per cent, the maths may work.
Subscribe to the newsletter if you want the weekly signal on rates, credit conditions, and what’s shifting in the refinancing market.
General info, not financial advice.
