BOQ mortgage book plunges as bank flags reduced broker reliance

The results follow BOQ’s decision to pause new-to-bank applications for BOQ-branded home loans through brokers from August 31, 2024.

Existing customers remained eligible for support and additional lending, while ME’s broker operations and BOQ’s proprietary channels continued uninterrupted.

ME remains its dedicated retail broker brand, while BOQ and Virgin Money are developing their first-party mortgage offerings.

Brokers originated 72 per cent of FY26 lending and accounted for 58 per cent of the existing portfolio, underscoring their importance while BOQ develops its digital mortgage offering.

BOQ’s chief financial officer Racheal Kellaway told analysts that broker reliance should moderate as the group’s own distribution capabilities mature, although acknowledged that customer preferences would sustain a substantial broker role.

“That is our plan, for sure. While we have been in the build of the digital home loan mortgage, we have been effectively relying much more on broker than we see going forward,” she said.

“But look, customers are still tending to like to use brokers for lots of different obvious reasons. So, we expect that to remain a very important channel for us.”

ME growth cushions the retreat

The brand-level figures showed BOQ’s mortgage portfolio declining by $3.572 billion and Virgin Money’s contracting by $903 million, while ME expanded its book by $1.279 billion over the year - providing a counterweight to contractions elsewhere in the group.

ME received 9,700 housing applications in the first half and 11,000 in the second, compared with 2,800 and 2,600 respectively for BOQ.

Chief executive Rod Finch said maintaining a competitive ME offering remained essential due the fact that borrowers were increasingly turning to brokers.

“We very much take a portfolio approach. We recognize that brokers are a key factor in this market. Customers are choosing that. They choose that through the cycle. So we, to participate in the mortgage market, we need to have a good proposition in that space, and that is really our ME brand that we take to market,” he said.

Yet he said the group was simultaneously developing alternative routes to customers through its other retail brands and their digital mortgage capabilities.

“But increasingly, we are thinking really about those first-party channels as well, both through our BOQ brand and our Virgin brand, where we are in market with the digital mortgage as well,” he outlined.

Kellaway said branch productivity had strengthened, yet added that the emerging proprietary offering had not displaced brokers as the dominant source of business.

“The broker proprietary mix is still in line with market, but heavily broker, as you would expect for us, given we are just launching the digital proprietary channel,” she said.

“We have seen, through our branches, an increase in productivity, so we have seen some uplifting momentum through our branch network in the period as well. But still, largely in line with market, which is broker-led.”

The distribution push also carries a cost objective, with BOQ stating that mortgage origination costs had fallen 22 per cent, with a 50 per cent reduction targeted at scale.

Refinancing competition sharpens retention pressure

Finch attributed much of the application pipeline to borrowers seeking replacement loans, highlighting the importance of refinancing to the group’s growth ambitions.

“The market we’re operating in is more of a refinance market: that is underpinning a large percentage of application volume,” he said.

He said ME has been competing with sharp pricing and a $3,000 cashback for eligible loans of at least $700,000 with at least 20 per cent equity.

“We’re stepping back in. Service is really key, committing to your time to originate, and you need to be there on price,” Finch told analysts.

However, Finch indicated incentives would remain a flexible competitive tool rather than an uninterrupted commitment to cashback-led acquisition.

The acquisition contest is accompanied by renewed pressure to retain existing borrowers, with Kellaway outlining an earlier period of aggressive discounting.

“If you look back beyond 12 months ago, we saw high levels of retention discounting in the market,” she said.

Kellaway said that pressure subsequently eased before intensifying again recently, creating a potential profitability constraint across the lending industry.

“It did actually come down through 2026 [but in] the last couple of months, we have started to see that trend back up again. You should expect to see, across the industry, some margin headwinds relating to retention discounting, I expect,” she said.

BOQ said that it was expecting a modest first-half FY27 margin improvement, subject to conditions.

The bank said this was supported by mortgage applications reaching $5.2 billion in the August quarter, the strongest quarterly result in two years.

August lending was flat after 23 consecutive monthly contractions. Investors represented 35 per cent of FY26 flows, while PAYG borrowers accounted for 86.4 per cent.

Housing arrears of at least 90 days rose from 0.96 per cent in February to 1.04 per cent in August.

BOQ also said that it had completed the migration of all ME customers from legacy platforms, covering everyday banking, savings, term deposits and mortgages.

It added that digital channels processed 88 per cent of August home lending applications across its brand.

AMP prioritises capital over mortgage volume

Separately, AMP Bank’s mortgage book declined about $407 million during the September quarter to $23.2 billion, leaving it approximately $722 million below December 2025 and 1.7 per cent lower annually.

AMP chief executive Blair Vernon said the bank’s balance-sheet strategy continued to favour capital efficiency over expanding lending volumes.

“Our focus in AMP Bank remains on optimising the balance sheet and reducing the capital intensity of this business,” he said.

[Related: Discharge practices worsen as brokers lash banks]