Big Banks Turn to AI to Boost Home Loans

Australia’s major banks are moving swiftly to adopt AI in an effort to regain control of the home loan market. This shift is intended to improve profitability but may also create disruption to broker relationships and internal workflows. After many years of depending on mortgage brokers to drive loan volumes, banks are now revising their digital and physical tactics as AI offers greater efficiency, quicker loan processing and more targeted customer engagement.

Traditionally, big banks handed over much of their mortgage lending to outside brokers to reduce costs and push short-term profits. However, the strategy has lost momentum. Broker commissions have stayed elevated while home loan profit margins have dropped by close to one third. Some new home loans are now generating losses, pushing banks to change direction.

In response, banks are reclaiming their lending processes by investing in AI-powered platforms that accelerate mortgage approvals and improve customer interactions. Some have started recruiting professionals from the broker sector and are opening branches in busy shopping centres, including on weekends. This is part of a wider effort to engage customers during hours when older branch systems fall short.

At the same time banks are applying AI to reshape administrative roles to run leaner operations. Westpac has set an ambitious cost-reduction target that aims to outperform rivals in cost-to-income ratios within four years. These efforts could have a ripple effect on both banking careers and the commercial property market if office occupancy continues to decline.

AI is also changing call centre dynamics and digital marketing strategies across financial firms. Smaller players have been early adopters, using AI to manage incoming calls. Larger banks are likely to follow with reductions in call centre staff. In marketing, AI is enabling more personalised campaigns that target potential borrowers more effectively online and in person.

Alongside these shifts, evolving regulations could force banks to increase their use of short-term unsecured loans from money markets while depending less on hybrid securities. Global volatility, particularly in the US bond markets, plays a role in lifting borrowing costs for Australian banks. The planned phase-out of hybrids could make funding more difficult if interest rates continue to shift unpredictably.

Retail investors are also being affected. Smaller companies are turning to direct engagement with shareholders, while the bigger banks lag behind. If proposals like an "unrealised gains tax" are introduced, self-managed super funds may reduce their bank holdings. This could lead banks to rely more heavily on institutional investors.

Source: FICO, The Adviser, MFAA