Westpac’s latest quarterly update has revealed that its mortgage growth is increasingly driven by the third-party channel, while direct lending continues to edge lower.
Westpac Banking Corporation, Australia’s second-largest retail and business bank, has reported a larger mortgage book and a growing reliance on third‑party channels in the first quarter of FY2026 trading update released on Friday (13 February).
Broker flows rise as proprietary slips
Westpac’s mortgage portfolio rose to $529.7 billion at the end of December 2025, up from $508.3 billion a year earlier and $518.7 billion in September 2025.
Over the same period, the balance between distribution networks continued to shift, with loans written via the proprietary channel falling from 47.3 per cent in December 2024 to 44.4 per cent by December 2025.
This means that the third-party channel now accounts for 55.6 per cent of the Australian mortgage portfolio, up from 52.7 per cent a year earlier – cementing Westpac’s position as the major bank with the highest proportion of broker‑originated mortgages.
Within the home loan book, owner‑occupied borrowers still dominate, yet slipped slightly as a share of total balances, from 68 per cent a year earlier to 67.2 per cent in December 2025.
However, investor lending moved in the opposite direction, with investment property loans rising from 31 per cent to 32 per cent over the same timeframe – pointing to renewed momentum in the segment.
Variable rates, loan structures and borrower mix
The portfolio remains overwhelmingly tied to variable interest rates, with the variable/fixed split moving from 93/7 in December 2024 to 97/3 by September and December 2025.
Interest‑only exposure edged higher yet remained contained – lifting from 11.8 per cent of the book in December 2024 to 12.2 per cent by December 2025.
First home buyers continue to represent a meaningful slice of the customer base, with their share nudging up from 12.2 per cent to 12.6 per cent year-on-year.
At the same time, the proportion of mortgage‑insured loans fell from around 11 per cent of the portfolio in December 2024 to 8.8 per cent in September 2025 and lower still by year‑end, signalling a tilt toward lower‑LVR lending and larger borrower deposits.
By product and repayment type, lines of credit remain steady at 1 per cent of the portfolio through all three periods.
Investment property loans on interest‑only terms sit at around 9–10 per cent of the book, while investment property principal‑and‑interest loans are holding steady at 22 per cent.
Owner‑occupied interest‑only loans are stable at 2 per cent, while owner‑occupied principal‑and‑interest loans account for about 65–66 per cent – underscoring that the majority of borrowers continue to amortise their debt.
Repayment buffers and hardship trends
Despite the increase in average loan sizes, most customers are running ahead of schedule.
By number of accounts, 86 per cent were ahead on repayments.
Hardship balances eased significantly, dropping from 0.93 per cent of the mortgage portfolio in December 2024 to 0.54 per cent by December 2025.
The update also noted a gradual shift into deeper pre-payment territory, with the share of customers more than two years ahead on their mortgage increasing from 25 per cent to 28 per cent year-on-year, and the six‑months‑to‑two‑years‑ahead cohort also lifting.
Solid first‑quarter results and steady margins
Across the group, net profit excluding notable items came in at $1.9 billion for 1QFY26, up 6 per cent on the 2HFY25 quarterly average.
Net operating income came in at $5.8 billion, 1 per cent higher than the 2H25 quarterly average, while operating expenses were reported at $3 billion with a 5 per cent favourable movement over the same comparison period.
Gross loans increased from $825 billion at December 2024 to $879 billion at December 2025 – representing annual growth of around 7 per cent and a $22 billion lift over the December quarter.
Westpac’s net interest margin eased slightly in the December quarter, dipping from a second‑quarter average of 1.95 per cent to 1.94 per cent, while its common equity Tier 1 capital ratio remained steady at 12.5 per cent.
[Related: Westpac sees spike in owner-occupied lending]
