Record number of mortgage holders lured by cash have switched banks

Wednesday, 8 October 2025

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Even before Wednesday’s OCR review and subsequent drop of 50 basis points to 2.5%, the search for a better deal has driven a record number of mortgage holders to switch their banks over recent months, according to the Reserve Bank.

Its latest figures showed the volume hit a record high in July, when $2.60 billion of the $9.03b of new mortgage lending went to people changing loan providers.

In August, the volume dropped back to $1.96b, but that was up on $1.58b at the same time last year, and $1.23b in August 2023.

Cotality chief property economist Kelvin Davidson said August’s housing market data generally was weaker, and he suspected lending activity would have picked up again in September.

Mortgage switchers’ share of lending had dipped to about 26% in August from about 29% in June and July, but it remained high compared to long term averages, he said.

“There is a real focus on refixing loans, and on switching banks to get the most competitive deal, with existing borrowers chasing cash backs at new banks.”

Banks were offering cash backs of up to 1%, which could amount to about $4000 or $5000, and that was a big carrot for many existing borrowers, he said.

“At the moment, it’s quite easy to switch without much in the way of break fees because many borrowers have been opting for short-term fixed or floating rates, and can get new loans to line up nicely.

“That window is still open, and with about 40% of current mortgages due to roll over in the next six months and another 10% on floating rates, switching behaviour will remain a feature for a while.”

The Reserve Bank’s latest official cash rate (OCR) cut had the potential to drive further switching as the banks passed it through to mortgage rates, Davidson said.

“It depends on how banks respond. There was a run of cuts to short-term rates prior to the OCR cut, and you get the sense they may have already reacted to the expected cut.

“But we’ll see if rates drop more, and there is certainly no sign that banks will pull back on offering cash backs any time soon, and they are attractive if a borrower is under financial pressure.”

Greater borrower awareness of the ability to switch was probably playing a part too, he said. “Still, eventually, people will start to fix for longer, and that will impact on switching levels.”

For Loan Market mortgage adviser Bruce Patten, switching was likely to continue at around current volumes for some time because the banks were “hell bent” on it.

He said banks were driving switching with cash back offers, not interest rates as “everyone is offering more or less the same when it comes to rates”.

Cash backs were generally 0.8% to 0.9% of the loan amount, although there were sometimes specials of around 1% for brief periods, he said.

“But that can be thousands of dollars, it’s a ridiculous amount of money, and that’s attractive to borrowers, especially at the moment when many people are financially stressed.

“People should be aware there’s a cost to switching - often there are break fees, and there’s legal fees in most cases. So they need to weigh a switch up, and determine if it’s actually worth it.”

Patten said he did not encourage customers to switch unless they wanted to, and many did not want to because it was a hassle.

“But some are keen. I have one customer who switched from ANZ to another bank a couple of years ago, and now he is back with ANZ. He is doing it for the money, but it can’t be profitable for the banks.”

The latest OCR cut might lead to a further increase in switching, as many borrowers were coming off fixed rates, and rates could go down more, he said.

“It’s a perfect storm really with banks offering lots of cash, so many will see it as a good time to switch.

“One thing to remember is that switching often pushes the span of a mortgage back out, and so a switcher can end up paying more in interest over the life of their loan than they would otherwise.”

Mortgages Online founder Hamish Patel said the lending game has changed, and most customers these days were aware of cash back incentives for switching.

Alongside the generous cash backs on offer, there seemed to be more flexibility from banks around clawback terms on previous cash backs, he said.

That meant where a customer once had to pay back 100% of a previous cash back if they switched within three years, now banks seemed to look at such situations on a more pro rata basis.

But he had not seen a marked increase in switching among his customers, rather there was an ongoing focus on short-term fixed or floating rates.

Much of that seemed to be based around the commentary relating to OCR cuts, but people should remember that rates did not always go down, Patel said.

“They could get stuck in the short-term cycle of hoping rates keep going down, and then lose the ability to fix at a lower two to three-year rate, as happened back in 2021.”

More people might review their loans and decide to switch as a result of the OCR cut, he said.

“Customers often get buyers remorse when they have fixed for longer periods and rates keep going down, but that’s why they should split their loans and have a mix.”

People had short memories when it came to rates, and they were willing to gamble on them, he added.

“It’s funny, there are people who would never set foot in a casino but when it comes to their mortgage they reckon they can make their bets work.”