Australia’s Big Four banks move to bypass mortgage brokers as profits squeezed

Australia's major banks, including Westpac, NAB, and ANZ, are strategically increasing in-house mortgage originations to reduce their significant reliance on brokers and bolster profit margins amid lower interest rates and intense competition. This shift is critical as proprietary lending is estimated to be 20-30% more profitable than broker-originated loans, directly impacting net interest margins which saw only a marginal 2 basis point increase for the Big Four in FY25. While market leader CBA and NAB have successfully reduced their broker-originated loan share, Westpac and ANZ are facing challenges, indicating a mixed execution of this crucial strategy to protect sector profitability.

Analysis

Australia's major banks are actively pursuing a strategic shift towards increasing in-house mortgage originations to counter persistent pressure on profit margins, driven by lower interest rates, escalating costs, and intense market competition. This pivot is economically significant, as proprietary lending is estimated to yield 20-30% higher returns compared to broker-originated loans, directly impacting net interest margins (NIMs). The Big Four's combined cash earnings for 2025, at A$30 billion, represent a 4.5% year-over-year decline, underscoring the urgency for margin protection despite a modest 2 basis point NIM increase for the sector in FY25.

Commonwealth Bank of Australia (CBA) is a clear leader in this transition, successfully reducing its broker-originated loan share to 32% in its last financial year, down from 38% in 2023. National Australia Bank (NAB) has also made progress, decreasing its broker reliance from 65% two years ago to 59% currently. These banks are demonstrating effective execution of the strategy to enhance profitability through direct channels.

Conversely, Westpac and ANZ are facing significant challenges in this strategic realignment, with their proprietary channels losing ground to brokers. Westpac's broker-written loans surged from 52% in 2023 to 67.5% in 2025, while ANZ experienced a similar increase from 64% to 67% over the same period. Westpac's CEO attributed this underperformance to a loss of home finance managers, highlighting operational hurdles in scaling direct origination capabilities.

Key Decisions for Investors

• Investors should closely monitor individual Australian banks' progress in increasing proprietary mortgage originations, as this directly correlates with future net interest margin expansion and profitability.
• Evaluate the operational efficiency and investment in direct sales channels for each bank, particularly for Westpac and ANZ, which are currently lagging in reducing broker reliance.
• Consider differentiated investment strategies within the Australian banking sector, favoring institutions like CBA and NAB that are demonstrating effective execution of margin-enhancing strategies over those struggling with the transition.