Pre-Budget paper links mortgage competition to housing costs and cost-of-living pressures
Australian Finance Group (AFG) has urged the federal government to use the 2026–27 Budget to preserve existing mortgage broking rules and to address structural funding advantages held by the major banks in the home loan market.
In a pre-Budget submission, AFG argued that mortgage repayments are now a central driver of household budgets and that the level of competition in residential lending has a direct bearing on housing affordability and cost-of-living strain.
It warned that weakening the broker channel or leaving funding imbalances unchecked would narrow lender choice and push borrowing costs higher over time.
AFG noted that brokers now arrange more than three-quarters of new owner-occupier loans, reflecting borrowers’ demand for intermediaries who can compare products, explain loan terms and assist with refinancing.
It stressed that brokers must comply with a legislated Best Interests Duty under the National Consumer Credit Protection Act, a standard that does not apply to lenders dealing with customers through direct channels.
Brokers driving choice for borrowers
The submission, signed by AFG chief executive David Bailey (pictured top), linked the rise of mortgage broking to earlier reforms that opened the banking sector to foreign entrants and to the growth of the residential mortgage-backed securities market, which gave smaller and non-bank lenders new funding avenues.
It also highlighted the continuing closure of bank branches, particularly in regional and outer-suburban areas, and contends that brokers now serve as a key point of access to credit options for borrowers in areas with limited physical banking services.
AFG pointed to the current regulatory and professional framework for brokers – including licensing, education requirements, compliance oversight, restrictions on conflicted remuneration and dispute resolution obligations – and cited industry data showing that complaints involving brokers and aggregators make up a small and falling share of banking and finance disputes.
On this basis, it argued that the regime is working as intended and that significant change would risk disrupting stable consumer outcomes.
Natural advantages
AFG placed particular emphasis on what it described as enduring funding advantages for the major banks, stemming from crisis-era policy measures such as wholesale funding guarantees and later interventions including the Reserve Bank of Australia’s Term Funding Facility.
It contended that these settings, combined with large deposit bases and implicit government support, have allowed major banks to pursue pricing strategies that smaller lenders cannot match over the long term, undermining lender diversity and competitive pressure.
AFG characterised constrained access to competitively priced wholesale funding as a structural market problem facing non-major lenders, rather than a reflection of weak demand or unsound business models.
It called for targeted, competition-focused measures to improve funding access where clear market failures can be identified, while maintaining private market discipline and financial stability. The submission pointed to overseas examples, including Canada, where government-supported securitisation frameworks have been used to support mortgage competition.
AFG also referred to the House of Representatives Standing Committee on Economics’ 2024 report on competition and economic dynamism, which recommended further work on funding disadvantages affecting non-major lenders.
The group concluded that maintaining the existing broker regulatory framework, avoiding reforms that would weaken the broker channel, and examining options to ease funding constraints for non-major lenders would together support stronger competition in the mortgage market and, in turn, help contain housing and borrowing costs.
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