Mortgage cashbacks are gone – and they’re not coming back

There were 35 lenders offering cashbacks less than a year ago when the craze hit a peak.

New numbers from the home loan industry confirm that the mortgage cashback craze from the banks is over … and that’s no bad thing.

RateCity, the financial comparison service, reports that the number of lenders offering cashbacks has dropped to just 11 and most of the remaining lenders are minor players.

“The craze is over and the banks have learnt their lesson, I don’t think they will be getting back into cashbacks anytime soon,” RateCity research director Sally Tindall says.

There were 35 lenders offering cashbacks less than a year ago when the craze hit a peak.

The controversial business of offering $5000 or more “free” to borrowers when they took out home loans was popular, but also a classic ruse of smoke and mirrors from banks who were fighting a marketing war largely to attract refinancing business.

Refinancing was the only game in town as the so-called “mortgage cliff” loomed with huge numbers of borrowers coming off super-low fixed rate mortgages.

Mortgage cashback offers of up to $10,000 indicated the practice was running rampant – it also exploited the tax system as borrowers got the money tax-free.

But even before the fashion for refinancing started to slide there had been protests from mortgage brokers that banks were abusing the system – mortgage brokers had to hand back commission money when loans were refinanced.

Peter White of the Finance Brokers Association of Australia branded the entire cashback craze as “a dog act” from the big banks.

RateCity research director Sally Tindall. Picture: Tim Hunter.

The Australian reported last May “the cashback game infuriated mortgage brokers because the way it works is that if a mortgage is ‘lost’ within 12 months of being signed then the mortgage brokers generally have to hand back 100 per cent of their commission to the bank”.

Data from the Finance Brokers Association of Australia (FBAA) between

2018 – 2021 found lender cashback incentives had risen by 59.1 per cent.

In the last six months, as rate peaked and lenders negotiated the mortgage cliff, the bulk of borrowers moved to variable rate loans underpinned by the RBA official cash rate, which is now at 4.35 per cent.

Having steered clients through the mortgage market when rates were rising, banks can now return to full-priced lending, leaving loss-leading mortgage cashback deals behind. By the same logic, consumers should not expect mortgage cashbacks to become common again for a long time.

For those still looking for mortgage cashbacks there are slim pickings – when they are offered the average is around $2000, with very little in the higher ranges.

ANZ is the last big four bank in the game, along with Westpac subsidiary St George.

After that it’s regionals such as Bank of Queensland and lenders such as RAMS or Reduce Home Loans. Typically, cashback amounts range between $2000 to $3000.

Cashbacks have also been offered for new home loans – as opposed to refinancing – but that business has now diminished substantially with only a handful of minor lenders in the game such as Bank of China or Greater Bank.

Home loan borrowers will be watching this Wednesday’s quarterly CPI update figures, where annual inflation is expected to drop to a slower pace of 4.3 per cent, raising the possibility of interest rate cuts by the end of the year.